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 57% of our issued and outstanding common stock.
We are a metals service center, with operations in the United States 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 distribution operations in China through Ryerson China Limited (“Ryerson China”). 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.”
The following table shows our percentage of sales by major product lines for the three and nine months ended September 30, 2017 and 2016, respectively:
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Three Months Ended
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Nine Months Ended
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|
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|
September 30,
|
|
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September 30,
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Product Line
|
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2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Carbon Steel Flat
|
|
|
29
|
%
|
|
|
29
|
%
|
|
|
28
|
%
|
|
|
27
|
%
|
Carbon Steel Plate
|
|
|
10
|
|
|
|
9
|
|
|
|
10
|
|
|
|
9
|
|
Carbon Steel Long
|
|
|
12
|
|
|
|
13
|
|
|
|
12
|
|
|
|
14
|
|
Stainless Steel Flat
|
|
|
17
|
|
|
|
17
|
|
|
|
18
|
|
|
|
16
|
|
Stainless Steel Plate
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
Stainless Steel Long
|
|
|
4
|
|
|
|
3
|
|
|
|
4
|
|
|
|
4
|
|
Aluminum Flat
|
|
|
16
|
|
|
|
16
|
|
|
|
15
|
|
|
|
16
|
|
Aluminum Plate
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Aluminum Long
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
|
|
5
|
|
Other
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Results of operations for any interim period are not necessarily indicative of results of any other periods or for the year. The condensed consolidated financial statements as of September 30, 2017 and for the three-month and nine-month periods ended September 30, 2017 and 2016 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 accounting principles generally accepted in the United States of America. 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, 2016.
NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS
Impact of Recently Issued Accounting Standards—Adopted
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-07, “
Investments – Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting
.” The amendment eliminates the retroactive adjustments to an investment upon it qualifying for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence by the investor. ASU 2016-07 requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment qualifies for equity method accounting. The update was effective for interim and annual reporting periods beginning after December 15, 2016. We adopted this guidance for our fiscal year beginning January 1, 2017. The adoption of this guidance did not have an impact on our consolidated financial statements.
6
In January 2017, the FASB issued
ASU 2017-01, “
Clarifying the Definition of a Business
”. The guidance in ASU 2017-01 was issued to provide clarity of the definition of a business with the objective to assist entities in the evaluation of whether a transaction should be accounted for as a
n acquisition of assets or a business. The update is effective for fiscal years beginning after December 15, 2017, and is to be applied on a prospective basis. Early adoption is permitted. We adopted this guidance for our fiscal year beginning January 1
, 2017. The adoption of this guidance did not have an impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “
Simplifying the Test for Goodwill Impairment
”. The objective of the guidance in ASU 2017-04 is to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. To test goodwill under this amendment, an entity should perform its annual impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized in the amount that the carrying amount exceeds the reporting unit’s fair value; however, the loss should not exceed the total amount of goodwill allocated to the reporting unit. The update is effective for fiscal years beginning after December 15, 2020, and is to be applied on a prospective basis. Early adoption is permitted. We adopted this guidance for our fiscal year beginning January 1, 2017. The adoption of this guidance did not have an impact on our consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, “
Targeted Improvements to Accounting for Hedging Activities
”. The objective of the amendments is to better align an entity’s risk management activities and financial reporting for hedging relationships. Changes are made to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. Certain targeted improvements are also made to simplify the application of hedge accounting guidance and ease the administrative burden of hedge documentation requirements and assessing hedge effectiveness. The update is effective for fiscal years beginning after December 15, 2018, and the amended presentation and disclosure guidance is to be applied on a prospective basis. Early adoption is permitted in any interim or annual period. We adopted this guidance effective July 1, 2017. The adoption of this guidance did not have an impact on our consolidated financial statements.
Impact of Recently Issued Accounting Standards—Not Yet Adopted
In May 2014, the FASB issued ASU 2014-09, “
Revenue from Contracts with Customers,
” which creates Accounting Standards Codification (“ASC”) 606 “
Revenue from Contracts with Customers
” and supersedes the revenue recognition requirements in ASC 605 “
Revenue Recognition.
” The guidance in ASU 2014-09 and subsequently issued amendments outlines a comprehensive model for all entities to use in accounting for revenue arising from contracts with customers as well as required disclosures. Under the new standard, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. The new standard requires additional disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers including significant judgments and changes in judgments. The new standard permits two methods of adoption: the full retrospective method or the modified retrospective transition method. We will adopt the new standard effective January 1, 2018 using the modified retrospective transition method with the cumulative effect recorded to the opening balance of retained earnings as of the date of adoption.
We have established a project management team to analyze the impact of the new standard. The team is evaluating our different revenue streams and reviewing representative contracts with customers to identify if there are differences that would result from the application of the new standard as compared to our current accounting policies and practices. Under the new standard, the Company expects to recognize revenue on an over time basis for a subset of revenues associated with custom fabricated products instead of upon delivery of the fabricated product to the customer. The Company has not yet completed the process of quantifying the effects on our consolidated financial statements of the changes that may result from adoption. The Company is implementing new business processes and internal controls in order to recognize revenue in accordance with the new standard. We believe our implementation of the new standard is progressing in a timely manner to allow for proper recognition, presentation, and disclosure upon adoption.
In January 2016, the FASB issued ASU 2016-01, "
Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.
" The amendments in ASU 2016-01 change the accounting for non-consolidated equity investments that are not accounted for under the equity method of accounting by requiring changes in fair value to be recognized in net income. Under current guidance, changes in fair value for investments of this nature are recognized in accumulated other comprehensive income as a component of stockholders’ equity. Additionally, ASU 2016-01 simplifies the impairment assessment of equity investments without readily determinable fair values; requires entities to use the exit price when estimating the fair value of financial instruments; and modifies various presentation disclosure requirements for financial instruments. T
he amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption.
The update is effective for interim and annual reporting periods beginning after December 15, 2017.
Early adoption is permitted. We will adopt this guidance for our fiscal year beginning
7
January 1, 2018.
We do not expect the adoption of this guidance to have a material impact on our consolidat
ed financial statements. Our available-for-sale investment as of September 30, 2017 has a fair value of $0.1 million.
In February 2016, the FASB issued ASU 2016-02, “
Leases
” codified in ASC 842, “
Leases.
” The guidance requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. The amendment also will require disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. The update is effective for interim and annual reporting periods beginning after December 15, 2018.
Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, and have the option to use certain relief. Full retrospective application is prohibited.
Early adoption is permitted.
We will adopt this guidance for our fiscal year beginning January 1, 2019. The Company is working to gather lists of all leases and is in the process of implementing a lease software to be used for lease tracking, reporting and disclosures. We are still assessing the impact of adoption on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, “
Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments.
” The amendment requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected, thus eliminating the probable initial recognition threshold and instead reflecting the current estimate of all expected credit losses. The amendment also requires that credit losses relating to available-for-sale debt securities be recorded through an allowance for credit losses rather than a write-down, thus enabling the ability to record reversals of credit losses in current period net income. The update is effective for interim and annual reporting periods beginning after December 15, 2019.
An entity will apply the amendment through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). A prospective transition approach is required for debt securities for which an-other-than-temporary impairment had been recognized before the effective date. The effect of a prospective transition approach is to maintain the same amortized cost basis before and after the effective date of this update.
Early adoption is permitted
only for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years
.
We will adopt this guidance for our fiscal year beginning January 1, 2020. We are still assessing the impact of adoption on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, “
Statement of Cash Flows – Classification of Certain Cash Receipts and Certain Cash Payments.
” The amendments address the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The update is effective for interim and annual reporting periods beginning after December 15, 2017.
The amendments should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable.
Early adoption is permitted.
We will adopt this guidance for our fiscal year beginning January 1, 2018.
The adoption of this guidance is not expected to have a material impact on our consolidated financial statements
.
In October 2016, the FASB issued ASU 2016-16,
“Income Taxes – Intra-Entity Transfers of Assets Other Than Inventory
.
”
The amendment requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The update is effective for interim and annual reporting periods beginning after December 15, 2017. The amendments should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Early adoption is permitted. We will adopt this guidance for our fiscal year beginning January 1, 2018.
The adoption of this guidance is not expected to have a material impact on our consolidated financial statements
.
In November 2016, the FASB issued ASU 2016-18
“Statement of Cash Flows – Restricted Cash.
”
The amendment requires entities to include in their cash and cash-equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. The ASU does not define the terms “restricted cash” and “restricted cash equivalents.” The amendment is effective for interim and annual reporting periods beginning after December 15, 2017.
The amendments should be applied using a retrospective transition method to each period presented.
Early adoption is permitted. We will adopt this guidance for our fiscal year beginning January 1, 2018.
The adoption of this guidance is not expected to have a material impact on our consolidated financial statements
.
In March 2017, the FASB issued ASU 2017-07, “
Compensation – Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post Retirement Benefit Cost
”
.
The amendment requires entities to disaggregate the service cost component from the other components of net benefit cost and limits the capitalization of net benefit cost to only the service cost component. The amendment also provides explicit guidance on how to present the service cost component and the other components of net benefit cost in the statement of comprehensive income. The amendments are effective for interim and annual reporting periods beginning after December 15, 2017. The disclosure requirements of the amendments should be applied retrospectively and the requirements concerning capitalization of the net service costs should be applied prospectively. We will adopt this guidance for our
8
fiscal year beginning January 1, 2018. Adoption of this guidance will result in a reclass within the lines of the Condensed Consolidated Statements of Comprehensive Income, with no impact on
gross margins, and is not expected to have a material impact on our consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, “
Compensation – Stock Compensation: Scope of Modification Accounting
”. The amendment provides guidance about which changes to the terms and conditions of a share-based payment award require an entity to apply the accounting guidance on modifications to share-based payment awards. The guidance is effective for interim and annual reporting periods beginning after December 15, 2017. We will adopt this guidance for our fiscal year beginning January 1, 2018. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.
NOTE 3: 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 September 30, 2017 and December 31, 2016 as follows:
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September 30,
|
|
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December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(In millions)
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|
In process and finished products
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|
$
|
691.7
|
|
|
$
|
563.4
|
|
If current cost had been used to value inventories, such inventories would have
been $79 million
and $115 million lower than reported at September 30, 2017 and December 31, 2016, respectively. Approximately 89% and 90% of inventories are accounted for under the LIFO method at September 30, 2017 and December 31, 2016, respectively. Non-LIFO inventories consist primarily of inventory at our foreign facilities using the weighted-average cost and the specific cost methods. Substantially all of our inventories consist of finished products.
Inventories are stated at the lower of cost or market value.
We record amounts required, if any, to reduce the carrying value of inventory to its lower of cost or market as a charge to cost of materials sold. The lower of cost or market
reserve totaled zero and $23.9 millio
n at September 30, 2017 and December 31, 2016, respectively.
The Company has consignment inventory at certain customer locations, which totaled $11.2 million and $11.1 million at September 30, 2017 and December 31, 2016, respectively.
NOTE 4: GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, which represents the excess of cost over the fair value of net assets acquired,
amounted to $115.3
million and $103.2 million
at September 30, 2017 and December 31, 2016, respectively. We recognized $12.1 million of goodwill during the first nine months of 2017 related to the acquisitions discussed in Note 5: Acquisitions. 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, 2016, and it
was determined that no impairment existed in 2016.
Other intangible assets with finite useful lives continue to be amortized over their useful lives. During the first nine months of 2017 we recognized $12.2 million in intangibles related to the acquisitions discussed in Note 5: Acquisitions. 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 5: ACQUISITIONS
On January 19, 2017, Ryerson Holding acquired The Laserflex Corporation (“Laserflex”), a privately-owned metal fabricator specializing in laser fabrication metal processing and welding with locations in Columbus, Ohio and Wellford, South Carolina. The acquisition is not material to our consolidated financial statements.
On February 15, 2017, Ryerson Holding acquired Guy Metals, Inc. (“Guy Metals”),
a privately-owned metal service center company located in Hammond, Wisconsin
. The acquisition is not material to our consolidated financial statements.
9
NOTE 6: LONG-TERM DEBT
Long-term debt consisted of the following at September 30, 2017 and December 31, 2016:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(In millions)
|
|
Ryerson Credit Facility
|
|
$
|
385.1
|
|
|
$
|
312.0
|
|
11.00% Senior Secured Notes due 2022
|
|
|
650.0
|
|
|
|
650.0
|
|
Foreign debt
|
|
|
19.5
|
|
|
|
19.2
|
|
Other debt
|
|
|
1.7
|
|
|
|
—
|
|
Unamortized debt issuance costs and discounts
|
|
|
(14.7
|
)
|
|
|
(17.7
|
)
|
Total debt
|
|
|
1,041.6
|
|
|
|
963.5
|
|
Less: Short-term foreign debt
|
|
|
19.5
|
|
|
|
19.2
|
|
Less: Other short-term debt
|
|
|
0.7
|
|
|
|
—
|
|
Total long-term debt
|
|
$
|
1,021.4
|
|
|
$
|
944.3
|
|
Ryerson Credit Facility
O
n November 16, 2016, Ryerson entered into an amendment with respect to its $1.0 billion revolving credit facility (as amended, the “Ryerson Credit Facility”), to reduce the total facility size from $1.0 billion (the “Old Credit Facility”) 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.
At September 30, 2017
, Ryerson had $385.1 million of outstanding borrowings, $15 million of letters of credit issued and $291 million available under
the Ryerson Credit Facility compared to $312.0 million of outstanding borrowings, $16 million of letters of credit issued and $225 million available at December 31, 2016. 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 (and in the case of Canadian accounts, a Canadian guarantor) 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 (and in the case of Canadian accounts, a Canadian guarantor). Qualified cash consists of cash in an eligible deposit account that is subject to customary restrictions and liens in favor of the lenders.
The Ryerson Credit Facility has an allocation of $660 million to the Company’s subsidiaries in the United States and an allocation of $90 million to Ryerson Holding’s Canadian subsidiary that is a borrower. 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%) or (B) a LIBOR rate 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 plus 1.00%) or (C) the bankers’ acceptance rate. The spread over the base rate and prime rate is between 0.25% and 0.50% and the spread over the LIBOR and for the bankers’ acceptances is between 1.25% and 1.50%, depending on the amount available to be borrowed under the
Ryerson
Credit Facility. Overdue amounts and all amounts owed during the existence of a default bear interest at 2% above the rate otherwise applicable thereto. Ryerson also pays commitment fees on amounts not borrowed at a rate of 0.23%.
We attempt to minimize interest rate risk exposure through the utilization of interest rate swaps, which are derivative financial instruments. During March 2017, we entered into an interest rate swap to fix interest on $150 million of our floating rate debt under the Ryerson Credit Facility at a rate of 1.658% through March 2020. The swap has reset dates and critical terms that match our existing debt and the anticipated critical terms of future debt. The weighted average interest rate on the outstanding borrowings under the Ryerson Credit Facility including the interest rate swap
was 2.7 percent and 2.2 percent at September 30, 2017 and December 31, 2016, 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.
10
The
Ryerson
Credit Facility also contains covenants that, among other things, restrict Ryerson Holding and its restricted subsidiaries wi
th 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 decli
nes 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 arr
angements.
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 may 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 proceeds of short-term borrowings that are reflected in the Consolidated Statements of Cash Flows represent borrowings under the
Ryerson
Credit Facility with original maturities less than three months.
2022 Notes
On May 24, 2016, JT Ryerson issued $650 million in aggregate principal amount of the 2022 Notes (the “2022 Notes”). The 2022 Notes bear interest at a rate of 11.00% per annum. The 2022 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 2022 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 United States (other than receivables, inventory, cash, deposit accounts and related general intangibles, certain other assets and proceeds thereof), subject to certain exceptions and customary permitted liens. The 2022 Notes and the related guarantees are also secured on a second-priority basis by a lien on the assets that secure JT Ryerson’s and the Company’s obligations under the Ryerson Credit Facility.
The 2022 Notes will be redeemable, in whole or in part, at any time on or after May 15, 2019 at certain redemption prices. The redemption price for the 2022 Notes if redeemed during the twelve months beginning (i) May 15, 2019 is 105.50%, (ii) May 15, 2020 is 102.75%, and (iii) May 15, 2021 and thereafter is 100.00%. JT Ryerson may redeem some or all of the 2022 Notes before May 15, 2019 at a redemption price of 100.00% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, plus a “make-whole” premium. In addition, JT Ryerson may redeem up to 35% of the 2022 Notes before May 15, 2019 with respect to the 2022 Notes with the net cash proceeds from certain equity offerings at a price equal to 111.00%, with respect to the 2022 Notes, of the principal amount thereof, plus any accrued and unpaid interest, if any. JT Ryerson may be required to make an offer to purchase the 2022 Notes upon the sale of assets or upon a change of control.
The 2022 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. Subject to certain exceptions, JT Ryerson may only pay dividends to Ryerson Holding to the extent of 50% of future net income, once prior losses are offset.
The net proceeds from the issuance of the 2022 Notes, along with borrowings under the Ryerson Credit Facility, were used to (i) repurchase and/or redeem in full the $569.9 million balance of JT Ryerson’s 9% Senior Secured Notes due 2017 (the “2017 Notes”), plus accrued and unpaid interest thereon up to, but not including, the repayment date, (ii) repurchase $95 million of the
11.25% Senior Secured Notes due 2018 (the “2018 Notes”), and (iii) pay related fees, expenses and premiums.
The Company applied the provisions of ASC 470-50, “
Modifications and Extinguishments”
in accounting for the issuance of the 2022 Notes, redemption of the 2017 Notes and partial repurchase of the 2018 Notes. The evaluation of the accounting under ASC 470-50 was performed on a creditor by creditor basis in order to determine if the terms of the debt were substantially different and, as a result, whether to apply modification or extinguishment accounting. For the lenders where it was determined that the terms of the debt were not substantially different, modification accounting was applied. For the remaining lenders, extinguishment accounting was applied. In connection with this debt modification and extinguishment, the Company recorded a $16.0 million loss within other income and (expense), net on the Condensed Consolidated Statement of Comprehensive Income during 2016, primarily attributed to the costs incurred with third parties for arrangement fees, legal and other services related to the modified debt, as well as redemption
11
fees paid to the creditors and unamortized d
ebt issuance costs written off related to the extinguished debt. Additionally, the costs incurred with third parties for arrangement fees, legal and other services related to the extinguished debt and redemption fees paid to the creditors related to the mo
dified debt were capitalized and are being amortized over the life of the modified debt using the effective interest method.
During the first nine months of 2016, a principal amount of $27.0 million of the 2018 Notes were repurchased for $18.2 million and retired, resulting in the recognition of an $8.8 million gain within other income and (expense), net on the Condensed Consolidated Statement of Comprehensive Income. Including the $16.0 million loss on the redemption of the $569.9 million balance of the 2017 Notes and repurchase of $95.0 million of the 2018 Notes, the Company recognized a total net loss of $7.2 million within other income and (expense), net on the Condensed Consolidated Statement of Comprehensive Income during the first nine months of 2016.
Foreign Debt
At September 30, 2017, Ryerson China’s foreign borrowings were $19.5 million, which were owed to banks in Asia at a weighted average interest rate of 3.9% per annum and secured by inventory and property, plant and equipment. At December 31, 2016, Ryerson China’s foreign borrowings
were $19.2 million
, which were owed to banks in Asia
at a weighted average interest
rate of 4.4%
per annum and secured by inventory and property, plant and equipment.
Availability under the foreign credit lines was $26 million at September 30, 2017 and December 31, 2016. Letters of credit issued by our foreign subsidiaries were $6 million at September 30, 2017 and December 31, 2016.
NOTE 7: EMPLOYEE BENEFITS
The following table summarizes the components of net periodic benefit (credit) cost for the three and nine month periods ended September 30, 2017 and 2016 for the Ryerson pension plans and postretirement benefits other than pension:
|
|
Three Months Ended September 30,
|
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(In millions)
|
|
Components of net periodic benefit (credit) cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
6
|
|
|
$
|
8
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Expected return on assets
|
|
|
(10
|
)
|
|
|
(12
|
)
|
|
|
—
|
|
|
|
—
|
|
Recognized actuarial (gain) loss
|
|
|
4
|
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Amortization of prior service credit
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Net periodic benefit credit
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
|
|
Nine Months Ended September 30,
|
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(In millions)
|
|
Components of net periodic benefit (credit) cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
|
|
19
|
|
|
|
22
|
|
|
|
2
|
|
|
|
2
|
|
Expected return on assets
|
|
|
(31
|
)
|
|
|
(34
|
)
|
|
|
—
|
|
|
|
—
|
|
Recognized actuarial (gain) loss
|
|
|
11
|
|
|
|
9
|
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Amortization of prior service credit
|
|
|
—
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Net periodic benefit credit
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
(6
|
)
|
|
$
|
(6
|
)
|
Effective May 19, 2017, the Company froze the benefits accrued under a portion of its defined benefit pension plan for certain wage employees. The freeze impacted a significant number of active accruing participants, therefore, curtailment accounting was required and the pension plan was remeasured as of May 31, 2017. The remeasurement resulted in a curtailment loss of $0.1 million, which was recorded within warehousing, delivery, selling, general and administrative expense within the condensed Consolidated Statement of Comprehensive Income. As a result of the remeasurement, the discount rate decreased from 4.14% to 3.86% and the expected long-term rate of return on pension assets increased from 6.75% to 6.95% due to improved expectations of returns on pension assets. See our Annual Report on form 10-K for further information on these assumptions.
12
The Company has
contributed $16 million
to the pension plan fund through the nine months ended September 30, 2017 and anticipates that it will have a minimum required pension contribution funding of approximately $
5
million for the remaining three months of 2017.
NOTE 8: COMMITMENTS AND CONTINGENCIES
In October 2011, the United States Environmental Protection Agency (the “EPA”) named us as one of more than 100 businesses that may be a potentially responsible party for the Portland Harbor Superfund Site (the “PHS Site”). On January 6, 2017, the EPA issued its 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. 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 September 30, 2017 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 9: DERIVATIVES AND FAIR VALUE MEASUREMENTS
Derivatives
The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are interest rate risk, foreign currency risk, and commodity price risk. 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 our Canadian subsidiaries’ variability in cash flows from the forecasted payment of currencies other than the functional currency. From time to time, we may enter into fixed price sales contracts with our customers for certain of our inventory components, and in these instances, we may enter into metal commodity futures and options contracts to reduce volatility in the price of metals. We may also enter into natural gas and diesel fuel price swaps to manage the price risk of forecasted purchases of natural gas and diesel fuel.
We have a receive variable, pay fixed, interest rate swap to manage the exposure to variable interest rates of the Ryerson Credit Facility. In March 2017, we entered into a forward agreement for $150 million of “pay fixed” interest at 1.658%, “receive variable” interest rate swap to manage the risk of increasing variable interest rates. The interest rate reset dates and critical terms match the terms of our existing debt and anticipated critical terms of future debt under the Ryerson Credit Facility. The fair value of the interest rate swap as of September 30, 2017 was zero.
The Company currently does not account for its commodity contracts and foreign exchange derivative contracts as hedges but rather marks them to market with a corresponding offset to current earnings. The Company accounts for its interest rate swap as a cash flow hedge of floating-rate borrowings with changes in fair value being recorded in accumulated other comprehensive income.
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.
13
The following table summarizes the location and fair value amount of our derivative instruments reported in our Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016:
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
Balance Sheet Location
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
Balance Sheet Location
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
(In millions)
|
|
Derivatives not designated as hedging instruments under ASC 815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Prepaid expenses and
other current assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other accrued
liabilities
|
|
$
|
0.1
|
|
|
$
|
—
|
|
Metal commodity contracts
|
|
Prepaid expenses and
other current assets
|
|
|
2.2
|
|
|
|
2.0
|
|
|
Other accrued
liabilities
|
|
|
2.3
|
|
|
|
0.2
|
|
Total derivatives
|
|
|
|
$
|
2.2
|
|
|
$
|
2.0
|
|
|
|
|
$
|
2.4
|
|
|
$
|
0.2
|
|
As of September 30, 2017 and December 31, 2016, the Company’s foreign currency exchange contracts had a U.S. dollar notional amount of $2.1 million and
$2.3 million
, respectively. As of September 30, 2017 and December 31, 2016, the Company had 517
tons
and 296 tons, respectively, of nickel swap contracts related to forecasted purchases. As of September 30, 2017 and December 31, 2016, the Company had 8,503 tons and 11,998 tons, respectively, of hot roll coil swap contracts related to forecasted purchases. The Company has aluminum swap contracts related to forecasted purchases, which had a notional amount of 15,717 tons and 8,466 tons as of September 30, 2017 and December 31, 2016, respectively. As of September 30, 2017 and December 31, 2016, the Company
has
zero gallons and 39,000 gallons, respectively, of diesel fuel swap contracts related to forecasted purchases. The Company had 3,402 tons and zero tons of zinc contracts as of September 30, 2017 and December 31, 2016, respectively. As of September 30, 2017, the Company had a notional amount of $150 million of the Ryerson Credit Facility hedged by an interest rate swap.
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 nine months ended September 30, 2017 and 2016:
|
|
|
|
Amount of Gain/(Loss) Recognized in Income on Derivatives
|
|
Derivatives not designated as
hedging instruments
|
|
Location of Gain/(Loss)
Recognized in Income
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
under ASC 815
|
|
on Derivatives
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
(In millions)
|
|
Metal commodity contracts
|
|
Cost of materials sold
|
|
$
|
0.8
|
|
|
$
|
1.7
|
|
|
$
|
2.6
|
|
|
$
|
9.0
|
|
Diesel fuel commodity contracts
|
|
Warehousing, delivery, selling, general and administrative
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.1
|
|
Foreign exchange contracts
|
|
Other income and (expense), net
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Total
|
|
|
|
$
|
0.8
|
|
|
$
|
1.7
|
|
|
$
|
2.5
|
|
|
$
|
9.0
|
|
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 nine months ended September 30, 2017 and 2016:
|
|
|
|
Amount of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Income into Income
|
|
Derivatives designated as
hedging instruments
|
|
Location of Gain/(Loss)
Recognized in Income
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
under ASC 815
|
|
on Derivatives
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
(In millions)
|
|
Interest Rate Swaps
|
|
Interest and other expense on debt
|
|
$
|
(0.1
|
)
|
|
$
|
—
|
|
|
$
|
(0.5
|
)
|
|
$
|
—
|
|
As of September 30, 2017, 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 $0.3 million.
14
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 September 30, 2017:
|
|
At September 30, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid and other current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock—available-for-sale investment
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments under ASC 815:
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal commodity contracts
|
|
$
|
—
|
|
|
$
|
2.2
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments under ASC 815:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Contracts
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
Metal commodity contracts
|
|
|
—
|
|
|
|
2.3
|
|
|
|
—
|
|
Total derivatives liabilities
|
|
$
|
—
|
|
|
$
|
2.4
|
|
|
$
|
—
|
|
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, 2016:
|
|
At December 31, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid and other current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock – available-for-sale investment
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments under ASC 815:
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal commodity contracts
|
|
$
|
—
|
|
|
$
|
2.0
|
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments under ASC 815:
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal commodity contracts
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
—
|
|
15
The fair value of each 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 nickel and zinc prices for varying time periods. The fair value of these derivatives is determined based on the spot price each individual contract was purchased at and compared with the one-month da
ily average actual spot price on the London Metals Exchange for nickel and zinc on the valuation date. The Company also has commodity derivatives to lock in hot roll coil, iron ore, and aluminum prices for varying time periods. The fair value of hot roll c
oil, iron ore, 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, the Singapore Exchange, and the Lond
on Metals Exchange, respectively, for the commodity on the valuation date. The Company has various commodity derivatives to lock in diesel prices for varying time periods. The fair value of these derivatives is determined based on the spot price each indiv
idual contract was purchased at and compared with the one-month daily average actual spot price of the Platts Index for Gulf Coast Ultra Low Sulfur Diesel on the valuation date. In addition, the Company has numerous foreign exchange contracts to hedge our
Canadian subsidiaries’ variability in cash flows from the forecasted payment of currencies other than the functional currency, the Canadian dollar. 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. T
he 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 3 to 12 months
in length.
The fair value of our interest rate swap is based on t
he 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 London Interbank Offe
red Rates.
The carrying and estimated fair values of our financial instruments at September 30, 2017 and December 31, 2016 were as follows:
|
|
At September 30, 2017
|
|
|
At December 31, 2016
|
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
|
(In millions)
|
|
Cash and cash equivalents
|
|
$
|
73.6
|
|
|
$
|
73.6
|
|
|
$
|
80.7
|
|
|
$
|
80.7
|
|
Restricted cash
|
|
|
1.3
|
|
|
|
1.3
|
|
|
|
1.0
|
|
|
|
1.0
|
|
Receivables less provision for allowances, claims and doubtful accounts
|
|
|
425.4
|
|
|
|
425.4
|
|
|
|
326.0
|
|
|
|
326.0
|
|
Accounts payable
|
|
|
362.5
|
|
|
|
362.5
|
|
|
|
230.4
|
|
|
|
230.4
|
|
Long-term debt, including current portion
|
|
|
1,041.6
|
|
|
|
1,120.7
|
|
|
|
963.5
|
|
|
|
1,034.2
|
|
The estimated fair value of the Company’s cash and cash equivalents, receivables less provision for allowances, claims and doubtful accounts 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).
Assets Held for Sale
The Company had zero and $3.6 million of assets held for sale, classified within “prepaid expenses and other current assets,” as of September 30, 2017 and December 31, 2016, respectively. The fair values less costs to sell of long-lived assets held for sale are assessed each reporting period that they remain classified as held for sale. Any increase or decrease in the held for sale long-lived asset’s fair value less cost to sell is reported as an adjustment to its carrying amount, except that the adjusted carrying amount cannot exceed the carrying amount of the long-lived asset at the time it was initially classified as held for sale. The fair values of each property were determined based on appraisals obtained from a third-party, pending sales contracts, or recent listing agreements with third-party brokerage firms (Level 2 inputs).
The following table presents those assets that were measured and recorded at fair value on our Condensed Consolidated Balance Sheet on a non-recurring basis and their level within the fair value hierarchy at December 31, 2016:
|
|
At December 31, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In millions)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets – assets held for sale
|
|
$
|
—
|
|
|
$
|
3.6
|
|
|
$
|
—
|
|
16
Available-For-Sale Investments
The Company has classified investments made during 2010 and 2012 as available-for-sale at the time of their purchase. Investments classified as available-for-sale are recorded at fair value with the related unrealized gains and losses included in accumulated other comprehensive income. Management evaluates investments in an unrealized loss position on whether an other-than-temporary impairment has occurred on a periodic basis. Factors considered by management in assessing whether an other-than-temporary impairment has occurred include: the nature of the investment; whether the decline in fair value is attributable to specific adverse conditions affecting the investment; the financial condition of the investee; the severity and the duration of the impairment; and whether we intend to sell the investment or will be required to sell the investment before recovery of its amortized cost basis. When it is determined that an other-than-temporary impairment has occurred, the investment is written down to its market value at the end of the period in which it is determined that an other-than-temporary decline has occurred.
During the second quarter of 2017 the financial condition of the investee declined, therefore, management determined that an other-than-temporary impairment occurred and thus recognized a $0.2 million impairment charge within other income and (expense), net in the second quarter of 2017. As of September 30, 2017, the investment has been in an unrealized loss position from its adjusted cost basis for three months. Management does not currently intend to sell the investment before recovery of its adjusted cost basis. Realized gains and losses are recorded within the Condensed Consolidated Statement of Comprehensive Income upon sale of the security and are based on specific identification.
The Company’s available-for-sale securities as of September 30, 2017 can be summarized as follows:
|
|
At September 30, 2017
|
|
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
|
(In millions)
|
|
Common stock
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
|
$
|
0.1
|
|
The Company’s available-for-sale securities as of December 31, 2016 can be summarized as follows:
|
|
At December 31, 2016
|
|
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
|
(In millions)
|
|
Common stock
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.4
|
|
There is no maturity date for these investments and there have been no sales
during the nine months ended September 30, 2017.
17
NOTE 10: STOCKHOLDERS’ EQUITY (DEFICIT), ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) AND
REDEEMABLE NONCONTROLLING INTEREST
The following table details changes in these accounts:
|
|
Ryerson Holding Corporation Stockholders' Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Treasury
Stock
|
|
|
Capital in
Excess of
Par Value
|
|
|
Accumulated
Deficit
|
|
|
Foreign
Currency
Translation
|
|
|
Benefit Plan
Liabilities
|
|
|
Unrealized Gain (Loss) on Available-
For-Sale Investments
|
|
|
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, 2017
|
|
|
37,345
|
|
|
$
|
0.4
|
|
|
|
213
|
|
|
$
|
(6.6
|
)
|
|
$
|
375.4
|
|
|
$
|
(112.2
|
)
|
|
$
|
(50.2
|
)
|
|
$
|
(258.7
|
)
|
|
$
|
1.1
|
|
|
$
|
1.5
|
|
|
$
|
(49.3
|
)
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17.1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.6
|
|
|
|
17.7
|
|
Foreign currency translation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5.5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.3
|
|
|
|
5.8
|
|
Gain on intra-entity foreign currency transactions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3.6
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3.6
|
|
Changes in defined benefit pension and other post-retirement benefit plans, net of tax of $3.9
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6.4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6.4
|
|
Unrealized loss on available-for-sale investment, net of tax of $0.1
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.2
|
)
|
|
|
—
|
|
|
|
(0.2
|
)
|
Other than temporary impairment, net of tax of $0.1
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.1
|
|
|
|
—
|
|
|
|
0.1
|
|
Stock-based compensation expense
|
|
|
76
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.5
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.5
|
|
Balance at September 30, 2017
|
|
|
37,421
|
|
|
$
|
0.4
|
|
|
|
213
|
|
|
$
|
(6.6
|
)
|
|
$
|
376.9
|
|
|
$
|
(95.1
|
)
|
|
$
|
(41.1
|
)
|
|
$
|
(252.3
|
)
|
|
$
|
1.0
|
|
|
$
|
2.4
|
|
|
$
|
(14.4
|
)
|
The following table details changes in accumulated other comprehensive income (loss), net of tax, for the nine months ended September 30, 2017:
|
|
Changes in Accumulated Other Comprehensive
Income (Loss) by Component
|
|
|
|
Foreign
Currency
Translation
|
|
|
Benefit
Plan
Liabilities
|
|
|
Available-
For-Sale
Investments
|
|
|
Cash Flow Hedge - Interest Rate Swap
|
|
|
|
(In millions)
|
|
Balance at January 1, 2017
|
|
$
|
(50.2
|
)
|
|
$
|
(258.7
|
)
|
|
$
|
1.1
|
|
|
$
|
—
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
9.1
|
|
|
|
7.8
|
|
|
|
(0.2
|
)
|
|
|
(0.3
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
|
—
|
|
|
|
(1.4
|
)
|
|
|
0.1
|
|
|
|
0.3
|
|
Net current-period other comprehensive income (loss)
|
|
|
9.1
|
|
|
|
6.4
|
|
|
|
(0.1
|
)
|
|
|
—
|
|
Balance at September 30, 2017
|
|
$
|
(41.1
|
)
|
|
$
|
(252.3
|
)
|
|
$
|
1.0
|
|
|
$
|
—
|
|
18
The following table details the reclassifications out of accumulated other comprehensive income (loss) for the three and nine month periods ended September 30, 20
17:
|
|
Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
|
|
|
Amount reclassified from Accumulated
|
|
|
|
|
|
Other Comprehensive Income (Loss)
|
|
|
|
|
|
Three Months
Ended
|
|
|
Nine Months
Ended
|
|
|
Affected line item in the Condensed
|
Details about Accumulated Other
|
|
September 30, 2017
|
|
|
Consolidated Statements of
|
Comprehensive Income (Loss) Components
|
|
(In millions)
|
|
|
Comprehensive Income
|
Other-than-temporary impairment
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary impairment charge
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
Other income and (expense), net
|
Tax benefit
|
|
|
—
|
|
|
|
(0.1
|
)
|
|
|
Net of tax
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
|
Cash flow hedge - interest rate swap
|
|
|
|
|
|
|
|
|
|
|
Realized swap interest loss
|
|
$
|
0.1
|
|
|
$
|
0.5
|
|
|
Interest and other expense on debt
|
Tax benefit
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
|
|
Net of tax
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
|
Amortization of defined benefit
pension and other post-
retirement benefit plan items
|
|
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss
|
|
$
|
1.9
|
|
|
$
|
(0.2
|
)
|
|
Warehousing, delivery, selling, general and administrative
|
Prior service credits
|
|
|
(0.8
|
)
|
|
|
(2.3
|
)
|
|
Warehousing, delivery, selling, general and administrative
|
Total before tax
|
|
|
1.1
|
|
|
|
(2.5
|
)
|
|
|
Tax provision (benefit)
|
|
|
(0.3
|
)
|
|
|
1.1
|
|
|
|
Net of tax
|
|
$
|
0.8
|
|
|
$
|
(1.4
|
)
|
|
|
The following table details the reclassifications out of accumulated other comprehensive income (loss) for the three and nine month periods ended September 30, 2016:
|
|
Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
|
|
|
Amount reclassified from Accumulated
|
|
|
|
|
|
Other Comprehensive Income (Loss)
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
Affected line item in the Condensed
|
Details about Accumulated Other
|
|
September 30, 2016
|
|
|
Consolidated Statements of
|
Comprehensive Income (Loss) Components
|
|
(In millions)
|
|
|
Comprehensive Income
|
Other-than-temporary impairment
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary impairment charge
|
|
$
|
—
|
|
|
$
|
2.8
|
|
|
Other income and (expense), net
|
Tax benefit
|
|
|
—
|
|
|
|
(1.1
|
)
|
|
|
Net of tax
|
|
$
|
—
|
|
|
$
|
1.7
|
|
|
|
Amortization of defined benefit
pension and other post-
retirement benefit plan items
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss
|
|
$
|
1.1
|
|
|
$
|
3.4
|
|
|
Warehousing, delivery, selling, general and administrative
|
Prior service credits
|
|
|
(0.7
|
)
|
|
|
(2.2
|
)
|
|
Warehousing, delivery, selling, general and administrative
|
Total before tax
|
|
|
0.4
|
|
|
|
1.2
|
|
|
|
Tax benefit
|
|
|
(0.1
|
)
|
|
|
(0.4
|
)
|
|
|
Net of tax
|
|
$
|
0.3
|
|
|
$
|
0.8
|
|
|
|
19
NOTE 11: INCOME TAXES
For the three months ended September 30, 2017, the Company recorded an income tax benefit of
$0.7 million compared to income tax expense of $1.6 million in the prior year. The $0.7 million tax benefit for the three months ended September 30, 2017 primarily represents the reversal of previous uncertain tax provisions due to the lapse of the statute of limitations and taxes at federal and local statutory rates where the Company operates, but generally excludes any tax benefit for losses in jurisdictions with historical losses.
For the nine months ended September 30, 2017, the Company recorded income tax expense of $5.3 million compared to $14.0 million in the prior year. The $5.3 million tax expense for the nine months ended September 30, 2017 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
.
In accordance with ASC 740, “
Income Taxes
,” 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 $19.5 million and $20.0 million at September 30, 2017 and December 31, 2016, respectively.
NOTE 12: EARNINGS PER SHARE
Basic earnings per share attributable to Ryerson Holding’s common stock is determined based on earnings for the period divided by the weighted average number of common shares outstanding during the period. Diluted earnings 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.
Stock-based awards with a grant price greater than the average market price of our common stock are excluded from the calculation of diluted earnings per share because the impact would
have been antidilutive. The weighted average number of shares excluded were 145,833 and 96,808 for the three and nine-month periods ended September 30, 2017, respectively.
The following table sets forth the calculation of basic and diluted earnings per share:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
Basic and diluted earnings per share
|
|
|
2017
|
|
|
|
2016
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
(In millions, except share and per share data)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Ryerson Holding Corporation
|
|
$
|
1.7
|
|
|
$
|
8.2
|
|
|
$
|
17.1
|
|
|
$
|
27.3
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
37,190,927
|
|
|
|
35,804,069
|
|
|
|
37,165,552
|
|
|
|
33,343,503
|
|
Dilutive effect of stock-based awards
|
|
|
103,781
|
|
|
|
161,615
|
|
|
|
125,041
|
|
|
|
92,009
|
|
Weighted average shares outstanding adjusted for dilutive securities
|
|
|
37,294,708
|
|
|
|
35,965,684
|
|
|
|
37,290,593
|
|
|
|
33,435,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.05
|
|
|
$
|
0.23
|
|
|
$
|
0.46
|
|
|
$
|
0.82
|
|
20