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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 March 31, 2022

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)

(312292-5000

(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 April 29, 2022, there were 38,667,745 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 Months Ended March 31, 2022 and 2021

3

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited)—Three Months Ended March 31, 2022 and 2021

4

 

 

 

 

 

 

Condensed Consolidated Balance Sheets—March 31, 2022 (Unaudited) and December 31, 2021

5

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

6

 

 

 

 

 

Item 2.

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

21

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

 

 

 

 

 

Item 4.

Controls and Procedures

32

 

 

 

Part II. Other Information:

 

 

 

 

 

 

Item 1.

Legal Proceedings

33

 

 

 

 

 

Item 1A.

Risk Factors

33

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

34

 

 

 

 

 

Item 4.

Mine Safety Disclosures

34

 

 

 

 

 

Item 5.

Other Information

34

 

 

 

 

 

Item 6.

Exhibits

35

 

 

 

Signature

36

 

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

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Net sales

 

$

1,748.8

 

 

$

1,147.3

 

Cost of materials sold

 

 

1,338.7

 

 

 

949.4

 

Gross profit

 

 

410.1

 

 

 

197.9

 

Warehousing, delivery, selling, general, and administrative

 

 

175.3

 

 

 

171.8

 

Gain on sale of assets

 

 

 

 

 

(20.3

)

Operating profit

 

 

234.8

 

 

 

46.4

 

Other income and (expense), net

 

 

(5.7

)

 

 

0.3

 

Interest and other expense on debt

 

 

(10.3

)

 

 

(13.5

)

Income before income taxes

 

 

218.8

 

 

 

33.2

 

Provision for income taxes

 

 

55.0

 

 

 

7.6

 

Net income

 

 

163.8

 

 

 

25.6

 

Less: Net income attributable to noncontrolling interest

 

 

0.2

 

 

 

0.3

 

Net income attributable to Ryerson Holding Corporation

 

$

163.6

 

 

$

25.3

 

Comprehensive income

 

$

166.7

 

 

$

28.0

 

Less: Comprehensive income attributable to noncontrolling interest

 

 

0.2

 

 

 

0.2

 

Comprehensive income attributable to Ryerson Holding Corporation

 

$

166.5

 

 

$

27.8

 

Basic earnings per share

 

$

4.26

 

 

$

0.66

 

Diluted earnings per share

 

$

4.17

 

 

$

0.66

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

 

$

0.10

 

 

$

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

 

3


 

 

RYERSON HOLDING CORPORATION AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

163.8

 

 

$

25.6

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

13.5

 

 

 

13.6

 

Stock-based compensation

 

 

1.3

 

 

 

1.6

 

Deferred income taxes

 

 

0.9

 

 

 

4.5

 

Provision for allowances, claims, and doubtful accounts

 

 

1.9

 

 

 

1.6

 

Gain on sale of assets

 

 

 

 

 

(20.3

)

Pension settlement charge

 

 

0.1

 

 

 

0.2

 

Loss on retirement of debt

 

 

5.3

 

 

 

 

Non-cash (gain) loss from derivatives

 

 

(10.3

)

 

 

9.1

 

Other items

 

 

(0.5

)

 

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(157.1

)

 

 

(165.2

)

Inventories

 

 

(5.9

)

 

 

(12.3

)

Other assets and liabilities

 

 

(8.9

)

 

 

(19.7

)

Accounts payable

 

 

87.4

 

 

 

118.5

 

Accrued liabilities

 

 

(28.3

)

 

 

13.0

 

Accrued taxes payable/receivable

 

 

23.2

 

 

 

0.5

 

Deferred employee benefit costs

 

 

(3.9

)

 

 

(18.0

)

Net adjustments

 

 

(81.3

)

 

 

(72.9

)

Net cash provided by (used in) operating activities

 

 

82.5

 

 

 

(47.3

)

Investing activities:

 

 

 

 

 

 

 

 

Acquisitions, net of cash acquired

 

 

(3.0

)

 

 

 

Capital expenditures

 

 

(18.8

)

 

 

(6.5

)

Proceeds from sale of property, plant, and equipment

 

 

1.0

 

 

 

29.0

 

Other items

 

 

 

 

 

(0.5

)

Net cash provided by (used in) investing activities

 

 

(20.8

)

 

 

22.0

 

Financing activities:

 

 

 

 

 

 

 

 

Repayment of debt

 

 

(68.8

)

 

 

(0.4

)

Net proceeds (repayments) of short-term borrowings

 

 

(26.1

)

 

 

1.2

 

Net increase in book overdrafts

 

 

33.6

 

 

 

9.4

 

Principal payments on finance lease obligations

 

 

(2.5

)

 

 

(2.5

)

Dividends paid to shareholders

 

 

(3.8

)

 

 

 

Share repurchases

 

 

(0.5

)

 

 

 

Other items

 

 

 

 

 

(0.1

)

Net cash provided by (used in) financing activities

 

 

(68.1

)

 

 

7.6

 

Net decrease in cash, cash equivalents, and restricted cash

 

 

(6.4

)

 

 

(17.7

)

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

 

 

(0.2

)

 

 

(0.4

)

Net change in cash, cash equivalents, and restricted cash

 

 

(6.6

)

 

 

(18.1

)

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

 

 

52.4

 

 

 

62.5

 

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

 

$

45.8

 

 

$

44.4

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest paid to third parties, net

 

$

16.1

 

 

$

22.8

 

Income taxes, net

 

 

31.7

 

 

 

2.3

 

Noncash investing activities:

 

 

 

 

 

 

 

 

Asset additions under operating leases

 

 

2.1

 

 

 

6.1

 

Asset additions under finance leases and sale-leasebacks

 

 

2.0

 

 

 

1.7

 

 

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)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

44.7

 

 

$

51.2

 

Restricted cash

 

 

1.1

 

 

 

1.2

 

Receivables less provisions of $2.7 at March 31, 2022 and $2.2 at December 31, 2021

 

 

788.7

 

 

 

630.8

 

Inventories

 

 

839.1

 

 

 

832.1

 

Prepaid expenses and other current assets

 

 

96.9

 

 

 

77.7

 

Total current assets

 

 

1,770.5

 

 

 

1,593.0

 

Property, plant, and equipment, at cost

 

 

813.6

 

 

 

792.8

 

Less: Accumulated depreciation

 

 

414.3

 

 

 

404.5

 

Property, plant, and equipment, net

 

 

399.3

 

 

 

388.3

 

Operating lease assets

 

 

205.6

 

 

 

211.1

 

Other intangible assets

 

 

40.8

 

 

 

42.2

 

Goodwill

 

 

124.9

 

 

 

124.1

 

Deferred charges and other assets

 

 

7.6

 

 

 

6.9

 

Total assets

 

$

2,548.7

 

 

$

2,365.6

 

Liabilities

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

602.6

 

 

$

481.2

 

Salaries, wages, and commissions

 

 

56.5

 

 

 

76.6

 

Other accrued liabilities

 

 

149.7

 

 

 

133.4

 

Short-term debt

 

 

24.7

 

 

 

28.8

 

Current portion of operating lease liabilities

 

 

24.7

 

 

 

24.9

 

Current portion of deferred employee benefits

 

 

6.2

 

 

 

6.1

 

Total current liabilities

 

 

864.4

 

 

 

751.0

 

Long-term debt

 

 

526.6

 

 

 

610.5

 

Deferred employee benefits

 

 

159.1

 

 

 

163.3

 

Noncurrent operating lease liabilities

 

 

180.8

 

 

 

184.8

 

Deferred income taxes

 

 

95.0

 

 

 

94.1

 

Other noncurrent liabilities

 

 

17.3

 

 

 

17.3

 

Total liabilities

 

 

1,843.2

 

 

 

1,821.0

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Ryerson Holding Corporation stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 7,000,000 shares authorized; no shares issued and outstanding at March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.01 par value; 100,000,000 shares authorized; 39,058,018 and 38,687,094 shares issued at March 31, 2022 and December 31, 2021, respectively

 

 

0.4

 

 

 

0.4

 

Capital in excess of par value

 

 

389.9

 

 

 

388.6

 

Retained earnings

 

 

481.4

 

 

 

321.7

 

Treasury stock at cost – Common stock of 390,417 and 292,932 shares at March 31, 2022 and December 31, 2021, respectively

 

 

(11.6

)

 

 

(8.4

)

Accumulated other comprehensive loss

 

 

(162.2

)

 

 

(165.1

)

Total Ryerson Holding Corporation stockholders’ equity

 

 

697.9

 

 

 

537.2

 

Noncontrolling interest

 

 

7.6

 

 

 

7.4

 

Total equity

 

 

705.5

 

 

 

544.6

 

Total liabilities and equity

 

$

2,548.7

 

 

$

2,365.6

 

 

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 54% of our 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 March 31, 2022 and for the three months ended March 31, 2022 and 2021 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, 2021.

NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS

Impact of Recently Issued Accounting Standards—Adopted

No accounting pronouncements have been issued that impact our 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:

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(In millions)

 

Cash and cash equivalents

 

$

44.7

 

 

$

51.2

 

Restricted cash

 

 

1.1

 

 

 

1.2

 

Total cash, cash equivalents, and restricted cash

 

$

45.8

 

 

$

52.4

 

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

NOTE 4: INVENTORIES

The Company primarily uses the last-in, first-out (LIFO) method of valuing inventory. In the first quarter of 2022, we changed the method we use to estimate LIFO on an interim basis.  This is a change in accounting estimate that is inseparable from a change in accounting principle. Historically, interim LIFO calculations were based on actual inventory levels and costs at each interim period. In the first quarter of 2022, we elected to recognize the interim effects of the LIFO inventory valuation method by projecting expected year-end inventory levels and LIFO costs and allocating that projection to the interim quarters on a pro-rata basis.

 

6


 

The change in the LIFO calculation method impacts all profit-based metrics as well as inventories for interim periods. Our annual LIFO calculation will be consistent with prior years and as such, year-end amounts will not be impacted.  We believe this change is preferable as it results in a better estimate of LIFO for the full year, creates less volatility in earnings on an interim basis, and makes our results more comparable to our peers. LIFO expense was $2.2 million for the quarter ended March 31, 2022 compared to $83.8 million during the quarter ended March 31, 2021.  LIFO expense for the quarter ended March 31, 2021 as compared to the quarter ended March 31, 2022 is higher due to a significant increase in metal prices, which occurred in the quarter ended March 31, 2021 as compared to pricing changes forecasted for December 2022.

Inventories, at stated LIFO value, were classified at March 31, 2022 and December 31, 2021 as follows:

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(In millions)

 

In process and finished products

 

$

839.1

 

 

$

832.1

 

 

If current cost had been used to value inventories, such inventories would have been $305 million and $303 million higher than reported at March 31, 2022 and December 31, 2021, respectively. Approximately 88% of inventories are accounted for under the LIFO method at March 31, 2022 and December 31, 2021. 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 $8.6 million and $8.8 million at March 31, 2022 and December 31, 2021, respectively.

 

NOTE 5: GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $124.9 million and $124.1 million at March 31, 2022 and December 31, 2021, respectively. We recognized $0.8 million of additional goodwill during the first three months of 2022. See Note 6: Acquisitions for further information. Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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, 2021, and it was determined that no impairment existed.

Other intangible assets with finite useful lives continue to be amortized over their useful lives. We recorded an additional $0.4 million of intangible assets during the first three months of 2022.  See Note 6: Acquisitions for further information. 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.

NOTE 6: ACQUISITIONS

On February 28, 2022, Ryerson Canada paid $3.0 million to acquire substantially all of the assets of Apogee Steel Fabrication Incorporated (“Apogee”), a sheet metal fabricator located in Mississauga, Ontario, Canada. Apogee is a full-line fabrication company providing sheering, punching, forming, and laser cut processing in addition to welding and hardware assembly services. Apogee provides complex fabrication assemblies in stainless steel, aluminum, and carbon sheet and adds to Ryerson’s value-added processing capabilities. The acquisition is not material to our consolidated financial statements.

 

7


 

NOTE 7: LONG-TERM DEBT

Long-term debt consisted of the following at March 31, 2022 and December 31, 2021:

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(In millions)

 

Ryerson Credit Facility

 

$

294.0

 

 

$

316.0

 

8.50% Senior Secured Notes due 2028

 

 

236.9

 

 

 

300.0

 

Foreign debt

 

 

22.9

 

 

 

27.0

 

Other debt

 

 

5.6

 

 

 

6.0

 

Unamortized debt issuance costs and discounts

 

 

(8.1

)

 

 

(9.7

)

Total debt

 

 

551.3

 

 

 

639.3

 

Less: Short-term foreign debt

 

 

22.9

 

 

 

27.0

 

Less: Other short-term debt

 

 

1.8

 

 

 

1.8

 

Total long-term debt

 

$

526.6

 

 

$

610.5

 

Ryerson Credit Facility              

On November 5, 2020, Ryerson entered into a fourth amendment of its $1.0 billion revolving credit facility to extend the maturity date from November 16, 2021 to November 5, 2025 (as amended, the “Ryerson Credit Facility” or “Credit Facility”). This 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 March 31, 2022, Ryerson had $294.0 million of outstanding borrowings, $14 million of letters of credit issued, and $691 million available under the Ryerson Credit Facility compared to $316.0 million of outstanding borrowings, $14 million of letters of credit issued, and $670 million available at December 31, 2021. 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.

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%).  Through November 5, 2021 the spread over the base rate and prime rate was fixed at 0.50% and the spread over the LIBOR for the bankers’ acceptances was fixed at 1.50%. After November 5, 2021, the spread over the base rate and prime rate is between 0.25% and 0.50% and the spread over the LIBOR for the bankers’ acceptances is 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. LIBOR rates will stop being published on June 30, 2023, at that time the interest rate on the Ryerson Credit Facility will be replaced by the Secured Overnight Financing Rate (“SOFR”).

 

8


 

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 3.0% and 2.5% at March 31, 2022 and December 31, 2021, 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.

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, the occurrence of a change of control of Ryerson, and a cross-default to other financing arrangements. 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.

2028 Notes

On July 22, 2020, JT Ryerson issued $500 million in aggregate principal amount of its 2028 Senior Secured Notes (“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 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 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. The Company completed partial redemptions of $200 million utilizing these redemption options between the fourth quarter of 2020 and fourth quarter 2021, resulting in an outstanding balance of $300 million as of December 31, 2021. 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.

 

9


 

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, 2021 was $0.2 million which was recorded within other current assets in the Condensed Consolidated Balance Sheet.  As of March 31, 2022, the fair value was determined to be zero with the change of $0.2 million recognized within other income and (expense), net on the Condensed Consolidated Statements of Comprehensive Income. Refer to Note 10: 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 three months of 2022, a principal amount of $63.1 million of the 2028 Notes were repurchased for $68.4 million and retired, resulting in the recognition of a $5.3 million loss within other income and (expense), net on the Condensed Consolidated Statement of Comprehensive Income. As a result, $236.9 million in aggregate principal amount of the 2028 Notes remain outstanding at March 31, 2022. Debt issuance costs of $1.0 million were written off associated with the repurchases and recognized within interest expense.

Foreign Debt

At March 31, 2022, Ryerson China’s foreign borrowings were $22.9 million, which were owed to banks in Asia at a weighted average interest rate of 3.4% per annum and secured by inventory and property, plant, and equipment. At December 31, 2021, Ryerson China’s foreign borrowings were $27.0 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 $24 million and $20 million at March 31, 2022 and December 31, 2021, respectively.  Letters of credit issued by our foreign subsidiaries were $5 million and $6 million at March 31, 2022 and December 31, 2021, respectively.

NOTE 8: EMPLOYEE BENEFITS

The following tables summarize the components of net periodic benefit cost (credit) for the Ryerson pension plans and postretirement benefit plans other than pension:

 

 

 

Three Months Ended March 31,

 

 

 

Pension Benefits

 

 

Other Benefits

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

(In millions)

 

Components of net periodic benefit cost (credit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

0.7

 

 

$

0.9

 

 

$

0.1

 

 

$

0.1

 

Interest cost

 

 

2.5

 

 

 

3.0

 

 

 

0.3

 

 

 

0.3

 

Expected return on assets

 

 

(3.4

)

 

 

(5.9

)

 

 

 

 

 

 

Settlement charge

 

 

0.1

 

 

 

0.2

 

 

 

 

 

 

 

Recognized actuarial (gain) loss

 

 

2.0

 

 

 

3.9

 

 

 

(1.5

)

 

 

(1.5

)

Amortization of prior service credit

 

 

 

 

 

 

 

 

 

 

 

(0.1

)

Net periodic benefit cost (credit)

 

$

1.9

 

 

$

2.1

 

 

$

(1.1

)

 

$

(1.2

)

 

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 $3.5 million to the pension plan funds through the three months ended March 31, 2022, and anticipates that it will have a minimum required pension contribution funding of approximately $2.3 million for the remaining nine months of 2022. The expected future contributions reflect recent pension funding relief measures under the American Rescue Plan Act (“ARPA”) passed in March 2021.

 

 

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NOTE 9: 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 filed with the EPA 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 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 2022. In the meantime, the voting parties of the PCI Group (which does not include JT Ryerson) have begun 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 or early 2023. 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 late 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 March 31, 2022 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 10: 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

 

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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 two 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 Ryerson 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 March 31, 2022 was a net liability of $0.3 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.  

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 7: 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 March 31, 2022 and December 31, 2021:

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

Balance Sheet Location

 

March 31, 2022

 

 

December 31, 2021

 

 

Balance Sheet Location

 

March 31, 2022

 

 

December 31, 2021

 

Derivatives not designated as hedging instruments under ASC 815

 

(In millions)

 

Metal commodity contracts

 

Prepaid expenses and

other current assets

 

$

20.4

 

 

$

13.0

 

 

Other accrued

liabilities

 

$

33.1

 

 

$

35.1

 

Diesel fuel commodity contracts

 

Prepaid expenses and

other current assets

 

 

0.7

 

 

 

 

 

Other accrued

liabilities

 

 

 

 

 

 

2028 Notes embedded derivative

 

Prepaid expenses and

other current assets

 

 

 

 

 

0.2

 

 

Other accrued

liabilities

 

 

 

 

 

 

Interest rate swaps

 

Prepaid expenses and other current assets

 

 

 

 

 

 

 

Other accrued liabilities

 

 

0.3

 

 

 

1.4

 

Total derivatives

 

 

 

$

21.1

 

 

$

13.2

 

 

 

 

$

33.4

 

 

$

36.5

 

 

The following table presents the volume of the Company’s activity in derivative instruments as of March 31, 2022 and December 31, 2021:

 

 

Notional Amount

 

 

 

Derivative Instruments

 

At March 31, 2022

 

 

At December 31, 2021

 

 

Unit of Measurement

Hot roll coil swap contracts

 

 

152,076

 

 

 

176,859

 

 

Tons

Aluminum swap contracts

 

 

15,396

 

 

 

20,949

 

 

Tons

Nickel swap contracts

 

 

534

 

 

 

857

 

 

Tons

Diesel fuel swap contracts

 

 

700,000

 

 

 

840,000

 

 

Gallons

Foreign currency exchange contracts

 

3.5 million

 

 

4.5 million

 

 

U.S. dollars

Interest rate swap contracts

 

160 million

 

 

160 million

 

 

U.S. dollars

 

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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 months ended March 31, 2022 and 2021:

 

Derivatives not designated as

 

Location of Gain/(Loss)

 

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

 

 

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

 

hedging instruments

 

Recognized in Income

 

Three Months Ended March 31,

 

 

Three Months Ended March 31,

 

under ASC 815

 

on Derivatives

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

 

 

(In millions)

 

Metal commodity contracts

 

Cost of materials sold

 

$

(2.6

)

 

$

(10.7

)

 

$

 

 

$

 

Diesel fuel commodity contracts

 

Warehousing, delivery, selling, general, and administrative