The following discussion and analysis should be read in conjunction with the audited Consolidated Financial Statements ofRyerson Holding Corporation and Subsidiaries and the Notes thereto in Item 8. "Financial Statements and Supplementary Data." This discussion contains forward-looking statements that involve risks and uncertainties. See the section entitled "Special Note Regarding Forward-Looking Statements." Our actual results and the timing of selected events could differ materially from those discussed in these forward-looking statements as a result of certain factors, including those discussed in Item 1A. "Risk Factors" and elsewhere in this Form 10-K. This section of this Form 10-K generally discusses 2021 and 2020 items and year-over-year comparisons between 2021 and 2020. Discussions of 2019 items and year-over-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 . Overview
Business
Ryerson Holding Corporation ("Ryerson Holding "), aDelaware corporation, is the parent company ofJoseph T. Ryerson & Son, Inc. ("JT Ryerson"), aDelaware corporation. Affiliates ofPlatinum Equity, LLC ("Platinum") own approximately 21,037,500 shares of our common stock, which is approximately 55% of our issued and outstanding common stock. We are a leading metals service center, value-added processor, and distributor of industrial metals with operations inthe United States through JT Ryerson, inCanada through our indirect wholly-owned subsidiaryRyerson Canada, Inc. , a Canadian corporation ("Ryerson Canada"), and inMexico through our indirect wholly-owned subsidiaryRyerson Metals de Mexico ,S. de R.L. de C.V. , a Mexican corporation ("Ryerson Mexico"). In addition to our North American operations, we conduct processing and distribution operations inChina through an indirect wholly-owned subsidiary,Ryerson China Limited , a Chinese limited liability company ("Ryerson China"). Unless the context indicates otherwise,Ryerson Holding , JT Ryerson,Ryerson Canada , Ryerson China, andRyerson Mexico , together with their subsidiaries, are collectively referred to herein as "Ryerson," "we," "us," "our," or the "Company."
Industry and Operation Trends
We are a metals service center providing value-added processing and distribution of industrial metals with operations inthe United States ,Canada , Mexico, and China. We purchase large quantities of metal products from primary producers and sell these materials in smaller quantities to a wide variety of metals-consuming industries. We carry a full line of nearly 75,000 products in stainless steel, aluminum, carbon steel, and alloy steels and a limited line of nickel and red metals in various shapes and forms. In addition to our metals products, we offer numerous value-added processing and fabrication services, and nearly 80% of the metals products we sell are processed by us by bending, beveling, blanking, blasting, burning, cutting-to-length, drilling, embossing, flattening, forming, grinding, laser cutting, machining, notching, painting, perforating, polishing, punching, rolling, sawing, scribing, shearing, slitting, stamping, tapping, threading, welding, or other techniques to process materials to a specified thickness, length, width, shape, and surface quality pursuant to specific customer orders. Similar to other metals service centers, we maintain substantial inventories of metals to accommodate the short lead times and just-in-time delivery requirements of our customers. Accordingly, we purchase metals to maintain our inventory at levels that we believe to be appropriate to satisfy the anticipated needs of our customers based upon customer forecasts, historic buying practices, supply agreements with customers, mill lead times, and market conditions. Our commitments to purchase metals are generally at prevailing market prices in effect at the time we place our orders. At the request of our customers, we have entered into swaps in order to mitigate our customers' risk of volatility in the price of metals and we have entered into metals hedges to mitigate our own risk of volatility in the price of metals. We have no long-term, fixed-price metals purchase contracts. When metals prices decline, customer demands for lower prices and our competitors' responses to those demands could result in lower sale prices and, consequently, lower gross profits and earnings as we sell existing metals inventory. When metals prices increase, competitive conditions will influence how much of the price increase we may pass on to our customers. The metals service center industry is cyclical and volatile in both demand and pricing, and difficult to predict. In 2021, Ryerson experienced both stronger pricing and demand compared to 2020, with average selling prices 57.0% higher and shipments 4.3% higher, as steel supply was limited throughout much of the year while end-market demand was strong. Changes in average selling 31 --------------------------------------------------------------------------------
prices are primarily determined by base metal prices, which impact Ryerson’s selling prices over the next three to six months.
Throughout 2021, indicators in the key steel industry end markets that had previously reported weakness as a result of the COVID-19 pandemic, reported growth. This is evidenced by theInstitute for Supply Management's Purchasing Managers' Index ("PMI"), which reported strength in each month of the year with readings above 50%, indicating general expansion in factory activity. This strength has continued into 2022 with a January reading of 57.6, which marks the twentieth consecutive month of expansion. Similarly,U.S. Industrial Production, which reports year-over-year industrial sector business output, reported growth in output for the eleventh consecutive month inJanuary 2022 . According to theMetal Service Center Institute , North American service center volumes increased by 7.6% in 2021 compared to 2020. On a North American basis, this volume growth outpaced Ryerson's, as Ryerson's North American volumes increased by 4.5% over the same period. Ryerson's demand growth was experienced most significantly in HVAC, commercial ground transportation, and construction sectors on a year-over-year basis.
COVID-19[feminine
At this time, our business, financial results, and the business of our customers continue to be impacted by COVID-19, including economic pressures, as well as supply chain disruptions and tightness stemming from COVID-19. This is perpetuated by increasing demand momentum. There is uncertainty in the nature and degree of COVID-19's continued effects over time. Meanwhile, we remain committed to ensuring the safety of our employees and protecting the health and well-being of the communities in which we operate. We continue to operate our business under COVID-19 safety policies until we are certain that related risks have subsided.
Faits saillants des performances 2021
These key metrics illustrate Ryerson's financial performance for the full year 2021 compared to 2020:$5.7B 20.2%$294M Total Revenues Gross Margin Net
Revenu attribuable à
64% increase 230bps increase$360M increase$7.56 $7.46 $35M Diluted EPS Adjusted Diluted EPS
Flux de trésorerie provenant des activités d’exploitation
$9.29 increase$7.54 increase$243M decrease
Un rapprochement du BPA dilué au BPA dilué ajusté est présenté ci-dessous.
Domestic steel demand was strong in 2021 while supply remained limited throughout much of the year, driving significant increases in average selling prices. Compared to 2020, average selling prices increased by 57.0% and tons shipped increased by 4.3%, resulting in a year-over-year revenue increase of 63.7%. Gross margin expanded by 230 bps from 2020 as rapidly increasing market prices outpaced inventory costs. Warehousing, delivery, selling, general, and administrative expenses for 2021 increased by$156.9 million compared to 2020 driven by increased variable compensation. However, expenses as a percentage of sales decreased from 16.0% to 12.5% as the Company effectively managed inflationary pressures in labor, logistics, and operating supplies. As a result of the Company's exceptional performance amidst the year's supportive conditions, we generated record net income attributable toRyerson Holding Corporation of$294.3 million , or$7.56 per diluted share, in 2021. This compares to a net loss attributable toRyerson Holding Corporation of$65.8 million , or a loss of$1.73 per diluted share, for 2020. To provide greater insight into the Company's 2021 operating trends apart from the year's one-time transactions, Ryerson provides adjusted net income (loss) and diluted adjusted earnings (loss) per share figures, which are notU.S. generally accepted accounting principles ("GAAP") financial measures, to compliment the reported GAAP net income (loss) and diluted earnings (loss) per share figures. Management uses these metrics to assess year-over-year performance excluding non-recurring transactions. Adjusted net income (loss) and adjusted diluted earnings (loss) per share do not represent, and should not be used as a substitute for, net income or earnings per share determined in accordance with GAAP. Illustrated in the below table, the 2021 net income attributable toRyerson Holding Corporation of$294.3 million includes a$109.6 million gain related to the sale-leaseback transactions 32 -------------------------------------------------------------------------------- completed during the year. It also includes$5.5 million of expenses related to the redemption of$100.0 million of the 8.50% senior secured notes due 2028 (the "2028 Notes"), which was enabled by the sale-leaseback transaction proceeds, as well as a$50 million redemption utilizing cash on hand. Both of these 2028 Notes redemptions were exercised in-line with the optional redemption features secured in the Company's 2020 bond issuance. 2021 net income additionally includes$98.3 million of nonrecurring pension settlement expenses driven by the third quarter partial annuitization of our pension liabilities. See "Pension Funding" discussion below for further details on this transaction. After adjusting for these non-core business transactions and the related provision for income taxes, the adjusted net income attributable toRyerson Holding Corporation for 2021 is$290.0 million , an increase of$293.1 million compared to the prior year's adjusted net loss attributable toRyerson Holding Corporation of$3.1 million which included adjustments for restructuring and other charges, loss on retirement of debt related to the redemption price paid to creditors as well as unamortized debt issuance costs written off related to the refinance of the 11.0% Senior Secured Notes, pension settlement charges related to a partial annuitization of pension liabilities, and a lump sum settlement offering in 2020, and related income taxes. (Dollars and shares in millions, except per share data) 2021 2020 Net income (loss) attributable to Ryerson Holding Corporation$ 294.3 $ (65.8) Gain on sale of assets (109.6) - Restructuring and other charges - 2.2 Loss on retirement of debt 5.5 17.7 Pension settlement charge 98.3 64.6 Provision (benefit) for income taxes 1.5 (21.8) Adjusted net income (loss) attributable to Ryerson Holding Corporation$ 290.0 $ (3.1) Diluted earnings (loss) per share$ 7.56 $ (1.73) Adjusted diluted earnings (loss) per share 7.46 (0.08) Shares outstanding - diluted 38.9 38.0
Ryerson a généré des liquidités provenant des activités d’exploitation de
Réalisations de la stratégie 2021 de Ryerson
Ryerson's market strategy focuses on providing excellent customer experiences consistently with speed at scale. Our culture is based on our trademarked "say yes, figure it out" mantra as we strive to grow volume and sustainably expand margins by increasing our fabrication business and improving our speed through our use of both tools and analytics. Ryerson's financial strategy includes a focus on generating strong cash from operating activities, enabled by industry-leading working capital management and an improved through the cycle operating model to effectively decrease both net debt and fixed cash commitments. In 2021, the Company continued to progress its financial strategy and recorded several milestone achievements. During the year, Ryerson successfully executed sale-leaseback transactions pursuant to which the Company sold thirteen properties and generated proceeds of$163 million . The Company subsequently utilized the proceeds to redeem$100 million of its 2028 Notes. In addition to this redemption, Ryerson also redeemed another$50 million of the 2028 Notes at a price of 103%. After these partial redemptions,$300 million aggregate principal amount of the 2028 Notes remains outstanding, a decrease of 40% compared to the$500 million in original principal issued in July of 2020. This$200 million reduction in the Notes decreased the Company's annual interest expense by$17 million . As a result of the Notes redemptions, total debt decreased from$740 million as ofDecember 31, 2020 to$639 million as ofDecember 31, 2021 and net debt (defined as total debt less cash and cash equivalents, and restricted cash from sales of property, plant, and equipment) decreased from$679 million to$588 million . Net debt is not a GAAP financial measure. We believe that net debt provides a clearer perspective of the Company's overall debt situation. Net debt should not be used as a substitute for total debt outstanding as determined in accordance with GAAP. A reconciliation of debt to net debt is provided with the "Liquidity and Capital Resources" discussion below. In addition, Ryerson furthered its financial transformation by completing another partial pension obligation annuitization in the third quarter of 2021. This$206 million annuitization not only reduced the Company's legacy liability risks but is also expected to yield economic savings of approximately$5 million on a net present value basis. In August, Ryerson's Board of Directors declared a first-time quarterly cash dividend of$0.08 per share of common stock which was paid onSeptember 16, 2021 . At the same time, the Board also approved a share repurchase program authorizing the Company to purchase up to an aggregate of$50 million of the Company's common stock over the following two years. These additions to Ryerson's capital allocation plan reflect the Company's commitment of delivering value to shareholders and underscore its confidence in its transformed balance sheet and improved operating model while also providing the ability to purchase shares below intrinsic value. Further underscoring this commitment and confidence, Ryerson's Board of Directors approved a half-cent increase to the dividend inNovember 2021 . The Company distributed this increased dividend of$0.085 per share of common stock to 33 --------------------------------------------------------------------------------
titulaires sur
In recognition of the Company's substantially reduced debt, Ryerson received credit upgrades from each of its covering agencies in 2021. Moody's upgraded Ryerson's corporate rating to B1 from B2,Standard & Poor's ("S&P") upgraded it to B+ from B, and Fitch issued an upgrade to BB- from B+. The following table summarizes the Company's ratings by agency as ofDecember 31, 2021 . Agency Corporate Revolving Credit Facility Senior Secured Outlook Moody's B1 N/A B2 Stable S&P B+ N/A B+ Stable Fitch BB- BB+ BB- Stable As a result of theJuly 2020 bond refinance and subsequent debt reductions, cash interest payments in 2021 totaled$51 million , compared to$62 million in 2020. Pension and retiree medical contributions increased compared to the prior year to$27 million as Ryerson paid an additional$12 million of pension contributions in 2021 that were deferred from 2020 as allowed under the Coronavirus Aid, Relief, and Economic Security Act ("The CARES Act"). Additionally, given the improved operating environment of 2021, the Company increased its capital expenditure budget, driving cash contributions to maintenance capital expenditures up to$37 million for the year, which includes maintenance capital expenditures that were deferred from 2020 as spending was reduced due to uncertainties surrounding the COVID-19 pandemic. In all, fixed cash commitments totaled$115 million in 2021, an increase compared to$88 million in the previous year. [[Image Removed]]
Industry developments
OnAugust 10, 2021 , theSenate passed theInfrastructure Investment and Jobs Act, a$1.2 trillion bill which features$550 billion in new federal spending over 5 years. Included in this spending is investment in roads, bridges, passenger and freight rail, electrical grid improvements, expansion of broadband access, transit systems, infrastructure for electric vehicles, and improvements to water systems. As of the date of this report, the bill is yet to receive passage by theHouse of Representatives . The Company believes that the additional government spending on infrastructure projects contemplated under theInfrastructure Investment and Jobs Act, as proposed, may generate additional demand for our products especially within the industrial equipment, construction, green energy, and transportation industries. Accordingly, we would anticipate that theInfrastructure Investment and Jobs Act would be beneficial to the Company, but ultimately the impact on the Company's operations is unclear. OnApril 22, 2021 , theU.S. International Trade Commission ("USITC") confirmed theDepartment of Commerce's affirmative antidumping duty determinations and injury determinations regarding US imports of common alloy aluminum sheet. As a result, the USITC has issued final antidumping duty orders onU.S. imports of common alloy aluminum sheet from the following sixteen countries:Bahrain ,Brazil ,Croatia ,Egypt ,Germany ,India ,Indonesia ,Italy ,Oman ,Romania ,Serbia ,Slovenia ,South Africa ,Spain ,Taiwan , andTurkey . Antidumping rates differ greatly depending on country of origin and producing mill and range from the low single digits to as high as 243%. Ryerson anticipates that the actions of the USITC will support the prices of domestically produced aluminum sheet and therefore benefit the Company's average selling prices. 34 -------------------------------------------------------------------------------- OnMarch 1, 2018 , theWhite House announced a 25% tariff on all imported steel products and 10% tariff on all imported aluminum products for an indefinite amount of time under Section 232 of the Trade Expansion Act ("Section 232"). These tariffs, while in effect, have discouraged metal imports from non-exempt countries and have had a favorable impact on the prices of the products we sell and our results of operations. Over the weekend ofOctober 30th and 31st, 2021, theUS andEuropean Union agreed to revise Section 232 tariffs applied to the import of European steel and aluminum, allowing for the duty-free import of European steel and aluminum into the US, subject to tariff rate quotas. Specifically, the tariff rate quota includes the duty-free import of 3.3 million metric tons of steel melted and poured in the EU, 18 thousand metric tons of unwrought aluminum, and 366 thousand metric tons of semi-finished aluminum. The revision was to be applied onJanuary 1, 2022 . At this time, the scope of this agreement and its impact to Ryerson are unclear.
Acquisitions
OnSeptember 1, 2021 , JT Ryerson acquiredSpecialty Metals Processing, Inc. ("SMP"), a toll processor located inStow, Ohio , for$14.0 million , net of cash acquired. SMP processes stainless steel, aluminum, titanium, and nickel alloy products in a variety of industries including aerospace. SMP's expertise in buffing, grinding, and polishing finishes adds to Ryerson's value-added processing capabilities.
Components of operating results
We generate substantially all of our revenue from sales of our metals products. The majority of revenue is recognized upon delivery of product to customers. The timing of shipment is substantially the same as the timing of delivery to customers given the proximity of our distribution sites to our customers. Revenues associated with products which we believe have no alternative use, and where the Company has an enforceable right to payment, are recognized on an over-time basis. Over-time revenues are recorded in proportion with the progress made toward completing the performance obligation.
Sales, cost of materials sold, gross margin and control of operating expenses are the main factors that impact our profitability:
Net Sales . Our sales volume and pricing are driven by market demand, which is largely determined by overall industrial production and conditions in specific industries in which our customers operate. Sales prices are also primarily driven by market factors such as overall demand and availability of product. Our net sales include revenue from product sales, net of returns, allowances, customer discounts, and incentives. Cost of materials sold. Cost of materials sold includes metal purchase and in-bound freight costs, third-party processing costs, and direct and indirect internal processing costs. The cost of materials sold fluctuates with our sales volume and our ability to purchase metals at competitive prices. Increases in sales volume generally enable us to improve purchasing leverage with suppliers as we buy larger quantities of metals inventories. Gross profit. Gross profit is the difference between net sales and the cost of materials sold. Our sales prices to our customers are subject to market competition. Achieving acceptable levels of gross profit is dependent on our acquiring metals at competitive prices, our ability to manage the impact of changing prices, and efficiently managing our internal and external processing costs. Operating expenses. Optimizing business processes and asset utilization to lower fixed expenses such as employee, facility, and truck fleet costs, which cannot be rapidly reduced in times of declining volume, and maintaining low fixed cost structure in times of increasing sales volume, have a significant impact on our profitability. Operating expenses include costs related to warehousing and distributing our products as well as selling, general, and administrative expenses. 35 -------------------------------------------------------------------------------- Results of Operations The following table sets forth our condensed consolidated statements of operations data: Year Ended Year Ended December 31, % of Net December 31, % of Net 2021 Sales 2020 Sales Net sales$ 5,675.3 100.0 %$ 3,466.6 100.0 % Cost of materials sold 4,528.5 79.8 2,845.5 82.1 Gross profit 1,146.8 20.2 621.1 17.9 Warehousing, delivery, selling, general, and administrative expenses 711.2 12.5 554.3 16.0 Gain on sale of assets (109.6 ) (1.9 ) - - Restructuring and other charges - - 2.2 - Operating profit 545.2 9.6 64.6 1.9 Other expenses (156.1 ) (2.7 ) (154.7 ) (4.5 ) Income (loss) before income taxes 389.1 6.9 (90.1 ) (2.6 ) Provision (benefit) for income taxes 93.7 1.7 (24.8 ) (0.7 ) Net income (loss) 295.4 5.2 (65.3 ) (1.9 ) Less: Net income attributable to noncontrolling interest 1.1 - 0.5 - Net income (loss) attributable toRyerson Holding Corporation $ 294.3 5.2 % $ (65.8 ) (1.9 )% Basic earnings (loss) per share $ 7.67 $ (1.73 ) Diluted earnings (loss) per share $ 7.56
$(1.73)
36 --------------------------------------------------------------------------------
The following graphs show the percentage of the Company’s sales by main product lines for 2021 and 2020:
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Comparison of the year endedDecember 31, 2021 with the year endedDecember 31, 2020 Net Sales Year Ended December 31, Dollar Percentage 2021 2020 change change ($ in millions) Net sales$ 5,675.3 $ 3,466.6 $ 2,208.7 63.7 % Year Ended December 31, Tons Percentage 2021 2020 change change (in thousands) Tons sold 2,095 2,009 86 4.3 % Year Ended December 31, Price Percentage 2021 2020 change change Average selling price per ton sold $ 2,709 $ 1,726$ 983 57.0 % Revenue for the year endedDecember 31, 2021 , increased from the same period a year ago due to higher average selling prices caused by supply constraints in 2021 and higher tons sold as metals market conditions began to improve in the second half of 2020 after declining sharply at the beginning of 2020 due to the global outbreak of COVID-19. Compared to the year ago period, average selling price increased for all of our product lines in 2021 with the largest increases in our carbon plate, carbon flat, stainless flat, and stainless plate products. Tons sold increased in 2021 overall, with increases in our aluminum flat, stainless flat, and aluminum long product lines partially offset by decreases in our carbon plate, aluminum plate, and stainless plate product lines. Tons sold per ship day were 8,313 in 2021 as compared to 7,941 in 2020. 37 -------------------------------------------------------------------------------- Cost of Materials Sold Year Ended December 31, 2021 2020 % of Net % of Net Percentage $ Sales $ Sales Dollar change change ($ in millions) Cost of materials sold$ 4,528.5 79.8 %$ 2,845.5 82.1 %$ 1,683.0 59.1 % Year Ended December 31, Dollar Percentage 2021 2020 change change
Average cost of materials per ton sold$ 2,162 $ 1,417 $ 745 52.6 % The increase in cost of materials sold in 2021 compared to the year ago period is primarily due to an increase in average cost of materials sold per ton driven by supply constraints and the increase in tons sold. The average cost of materials sold increased across all of our product lines with the average cost of materials sold for our carbon plate, carbon flat, and carbon long product lines increasing more than our other product lines during 2021. During 2021, LIFO expense was$366 million related to increases in pricing for all product lines with the largest impact from carbon products. During 2020, LIFO income was$12 million related to decreases in pricing for all product lines, which was muted by the impact of a reduction in tons in inventory, which led to the liquidation of older LIFO layers that were at a higher cost. Gross Profit Year Ended December 31, 2021 2020 % of Net % of Net Percentage $ Sales $ Sales Dollar change change ($ in millions) Gross profit$ 1,146.8 20.2 %$ 621.1 17.9 % $ 525.7 84.6 % Gross profit dollars increased in 2021 compared to 2020 due to an increase in volume as well as average selling price increasing faster than the increase in the average cost of materials sold, which resulted in an increase in gross margin. Operating Expenses Year Ended December 31, 2021 2020 % of Net % of Net Dollar Percentage $ Sales $ Sales change change ($ in millions) Warehousing, delivery, selling, general, and administrative expenses$ 711.2 12.5 %$ 554.3 16.0 %$ 156.9 28.3 % Gain on sale of assets$ (109.6 ) (1.9 )% $ - -$ (109.6 ) - Restructuring and other charges $ - -$ 2.2 -$ (2.2 ) (100.0 )% Total operating expenses in 2021 were$45.1 million higher than in 2020. The increase in operating expenses in 2021 was primarily due to higher employee related costs as incentive compensation increased$76.3 million due to higher profitability, employee benefit expense increased by$21.0 million due to higher discretionary bonus program expenses, medical costs, and payroll taxes on higher incentive compensation, and salaries and wages expense increased by$16.2 million due to an increase in headcount, and higher salaries as 2020 included workforce and compensation reductions as a result of the pandemic, as well as higher overtime and temporary help due to labor shortages in some areas in 2021. In addition, expenses were impacted by changes in the following categories:
• higher operating expenses of
operating supplies and the increase in rental expenses after the sale-leaseback of
13 establishments in 2021;
• an increase in selling, general and administrative expenses of
mainly due to the increased use of external technical services and the increase
travel and entertainment expenses;
• higher delivery costs of
increased fuel and delivery costs; and • higher depreciation of$2.1 million . 38
-------------------------------------------------------------------------------- Partially offsetting these increases were gains on the sale and leaseback of facilities in 2021. In the first quarter of 2021, we recognized a gain on sale of assets of$20.3 million from the sale and leaseback of ourRenton, Washington , facility. In the second quarter of 2021, we recognized a gain of$87.4 million on the sale-leaseback of twelve of our facilities acrossthe United States . In the fourth quarter of 2021, we recognized a gain of$1.9 million on the sale of a purchase option for a facility inOhio . In addition, reorganization costs were$9.6 million lower in 2021 compared to 2020. Included in the reorganization costs in 2020 was$3.7 million of system implementation costs and a restructuring charge of$2.2 million of severance costs for staff reductions. On a per ton basis, operating expenses increased to$287 per ton in 2021 from$277 per ton in 2020. Operating Profit Year Ended December 31, 2021 2020 % of Net % of Net Percentage $ Sales $ Sales Dollar change change ($ in millions) Operating profit$ 545.2 9.6 %$ 64.6 1.9 % $ 480.6 744.0 %
Our operating profit increased in 2021 compared to 2020 primarily due to higher average selling prices and increased tonnes sold.
Other Expenses
Year Ended December 31,
2021 2020
% of Net % of Net Dollar Percentage
$ Sales $ Sales change change
($ in millions)
Interest and other expense on debt $ (51.0 ) (0.9 )% $ (76.4 ) (2.2 )% $ 25.4 (33.2 )%
Other income and (expense), net $ (0.9 ) - $ 5.3 0.1 % $ (6.2 ) (117.0 )%
Pension settlement charges $ (98.7 ) (1.7 )% $ (65.9 ) (1.9 )% $ (32.8 ) 49.8 %
Loss on retirement of debt $ (5.5 ) (0.1 )% $ (17.7 ) (0.5 )% $ 12.2 (68.9 )%
Interest and other expense on debt decreased in 2021 compared to 2020 primarily
due to the redemption of our 11.00% Senior Secured Notes due 2022 (the "2022
Notes") which had an outstanding balance of $530.3 million at the redemption
date of August 21, 2020 following the redemption of $57.6 million of the 2022
Notes during the first six months of 2020. The 2022 Notes were replaced by a
lower level of debt at a lower interest rate with the issuance of $500.0 million
of 8.50% senior secured notes due 2028 (the "2028 Notes"). In October 2020 ,
$50.0 million of the 2028 Notes were redeemed and in July 2021 , $150 million of
the 2028 Notes were redeemed. In addition, interest and other expense on debt
was lower in 2021 due to a lower level of borrowings outstanding under our $1.0
billion revolving credit facility ("the Ryerson Credit Facility") compared to
2020 as excess funds were borrowed in 2020 to maintain access to cash during the
COVID-19 pandemic. Interest expense in 2021 included a $2.8 million charge to
write-off unamortized bond issuance costs related to the $150.0 million of 2028
Notes redeemed in July 2021 . Interest expense in 2020 included a $1.0 million
charge to write-off unamortized bond issuance costs related to the $50.0 million
of 2028 Notes redeemed in October 2020 and a $0.4 million charge to write-off
unamortized bond issuance costs related to the $57.6 million of 2022 Notes
repurchased during the first six months of 2020.
The year 2021 includes a $98.7 million pension settlement loss due to the
annuitization and lump-sum payouts of a portion of our pension liability and a
$5.5 million loss on the repurchase of $150.0 million of the 2028 Notes. In
addition, the other income and (expense), net in 2021 includes a $2.1 million
loss from the change in the fair value of an embedded derivative within the 2028
Notes indenture, and a $0.7 million credit from net periodic benefit cost other
than service cost. The year 2020 includes a $65.9 million pension settlement
loss due the annuitization and lump-sum buyouts of a portion of our pension
liability, a $16.2 million loss on the repurchase and redemption of the 2022
Notes, and a $1.5 million loss on the redemption of $50.0 million of the 2028
Notes. In addition, other income and (expense), net in 2020 included a $2.3
million gain on the recognition of the fair value of an embedded derivative in
the 2028 Notes indenture and a $2.1 million credit from net periodic benefit
cost other than service cost. See the Pension Funding section below for further
details on the transactions that resulted in the pension settlement losses in
both years.
39
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Provision for income taxes
The$93.7 million income tax provision in 2021 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. During 2021, the Company recorded a$1.6 million benefit as a result of releasing valuation allowances on certain state and foreign net operating losses, and a$0.8 million benefit related to the statute of limitations expiring on an uncertain tax position.
the
Non-controlling interest
In both 2021 and 2020, Ryerson China's results of operations was income and the portion attributable to the noncontrolling interest was$1.1 million and$0.5 million , respectively. Earnings Per Share Basic and diluted earnings per share was$7.67 and$7.56 , respectively, in 2021. Basic and diluted loss per share was$1.73 in 2020. The changes in earnings per share are due to the results of operations discussed above. Liquidity and Capital Resources The Company's primary sources of liquidity are cash and cash equivalents, cash flows from operations, and borrowing availability under the Ryerson Credit Facility that matures onNovember 5, 2025 . Our principal source of operating cash is from the sale of metals and other materials. Our principal uses of cash are for payments associated with the procurement and processing of metals and other materials inventories, costs incurred for the warehousing and delivery of inventories, the selling and administrative costs of the business, capital expenditures, and for interest payments on debt. The global COVID-19 pandemic led to disruption and volatility in the global capital markets, which, depending on future developments, could adversely impact our capital resources and liquidity in the future. As a proactive, precautionary measure, we borrowed approximately$166 million under the Ryerson Credit Facility in the first quarter of 2020 to maintain access to cash during the COVID-19 pandemic. As ofDecember 31, 2021 , we are no longer holding excess cash due to COVID-19 concerns. We had cash and cash equivalents of$51.2 million atDecember 31, 2021 , compared to$61.4 million atDecember 31, 2020 . Our total debt outstanding atDecember 31, 2021 decreased to$639 million compared to$740 million of total debt outstanding atDecember 31, 2020 due to proceeds received from the facility sale and leaseback transactions and cash flow from operations in 2021. See Part II. Item 8, Financial Statements and Supplementary Data, Note 5: Property, Plant, and Equipment for further discussion. We had a debt-to-capitalization ratio of 54% and 84% atDecember 31, 2021 and atDecember 31, 2020 , respectively. We had total liquidity (defined as cash and cash equivalents, restricted cash from sales of property, plant, and equipment, and availability under the Ryerson Credit Facility and foreign debt facilities) of$741 million atDecember 31, 2021 versus$373 million atDecember 31, 2020 . Our net debt (defined as total debt less cash and cash equivalents, and restricted cash from sales of property, plant, and equipment) was$588 million and$679 million atDecember 31, 2021 andDecember 31, 2020 , respectively. Total liquidity and net debt are notU.S. generally accepted accounting principles ("GAAP") financial measures. We believe that total liquidity provides additional information for measuring our ability to fund our operations. Total liquidity does not represent, and should not be used as a substitute for, net income or cash flows from operations as determined in accordance with GAAP and total liquidity is not necessarily an indication of whether cash flow will be sufficient to fund our cash requirements. We believe that net debt provides a clearer perspective of the Company's overall debt situation given the excess borrowings discussed above. Net debt should not be used as a substitute for total debt outstanding as determined in accordance with GAAP.
Below is a reconciliation of cash and cash equivalents to total liquidity:
December 31, 2021
(In millions)
Cash and cash equivalents $ 51 $ 61 $ 11
Restricted cash from sales of property,
plant, and equipment - - 48
Availability under Ryerson Credit Facility
and foreign debt facilities 690 312 380
Total liquidity $ 741 $ 373 $ 439
40
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Below is a reconciliation of total debt to net debt:
December 31, 2021 December 31, 2020 December 31, 2019
(In millions)
Total debt $ 639 $ 740 $ 982
Less: cash and cash equivalents (51 ) (61 ) (11 )
Less: restricted cash from sales of
property, plant, and equipment - - (48 )
Net debt $ 588 $ 679 $ 923
Of the total cash and cash equivalents, as of December 31, 2021 , $20.9 million
was held in subsidiaries outside the United States which is deemed to be
permanently reinvested. Ryerson does not currently foresee a need to repatriate
earnings from its non-U.S. subsidiaries. Although Ryerson has historically
satisfied needs for more capital in the U.S. through debt or equity issuances,
Ryerson could elect to repatriate earnings held in foreign jurisdictions, which
could result in higher effective tax rates. We have not recorded a deferred tax
liability for the effect of a possible repatriation of these earnings as
management intends to permanently reinvest these earnings outside of the U.S.
Specific plans for reinvestment include funding for future international
acquisitions and funding of existing international operations.
The following table summarizes the Company’s cash flows:
Year Ended December 31,
2021 2020
(In millions)
Net income (loss) $ 295.4 $ (65.3 )
Depreciation and amortization 55.9 53.9
Pension settlement charge 98.7 65.9
Gain on sale of assets (109.6 ) -
Change in operating assets and liabilities:
Receivables (252.5 ) 46.7
Inventories (227.9 ) 138.9
Accounts payable 123.6 25.8
Accrued liabilities 32.0 16.7
Deferred employee benefit costs (25.0 ) (10.6 )
Other operating asset and liability balances 1.9
11.8
All other operating cash flows 42.5 (5.9 ) Net cash provided by operating activities 35.0 277.9 Acquisitions (14.5 ) - Capital expenditures (59.3 ) (26.0 ) Proceeds from sale of property, plant, and equipment 166.3
0.1
Proceeds from other investing activities 1.9
–
Net cash provided by (used in) investing activities 94.4 (25.9 ) Long term debt issued - 500.0 Repayment of debt (157.3 ) (654.7 ) Net proceeds (repayments) of short-term borrowings 45.8 (93.8 ) Bond issuance costs - (10.9 ) Net increase (decrease) in book overdrafts (7.7 )
27.4
All other financing cash flows (18.7 ) (18.2 ) Net cash used in financing activities (137.9 ) (250.2 ) Effect of exchange rates on cash and cash equivalents (1.6 )
0.9
Net increase (decrease) in cash and cash equivalents
Operating activities. Working capital fluctuates throughout the year based on
business needs. Working capital needs tend to be counter-cyclical, meaning that
in periods of expansion the Company will use cash to fund working capital
requirements, but in periods of contraction the Company will generate cash from
reduced working capital requirements. Working capital requirements in 2021
increased significantly as improved economic conditions increased demand and
supply constraints increased metals pricing, which increased sales and the
related accounts receivable. Inventory quantities were increased to meet the
higher demand and inventory costs increased due to rising metal prices
throughout the year. The higher inventory investment also increased accounts
payable balances. In 2020, working capital requirements significantly decreased,
contributing to the operating cash flows generated in the period, as the Company
had lower sales levels driven by lower tons sold and lower average selling
prices due to weak economic
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conditions resulting from the COVID-19 pandemic. Consequently, the Company
brought inventory levels down significantly in line with the weak market
conditions. The Company also increased the days payable cycle in 2020 by working
with our vendors on payment terms resulting in an increase in accounts payable
year over year. Pension contributions were higher in 2021 than in 2020 as the
Company elected in 2020 to defer $12 million of U.S. contributions due in 2020
to 2021, as permitted under the CARES Act that was passed in March 2020 . The
Company made contributions of $23.7 million in 2021 to the Company's pension
plans compared to contributions of $7.1 million in 2020. Interest paid to third
parties was $10.9 million lower in 2021 compared to 2020 due to lower
outstanding debt and interest rates, mainly due to the repurchase in 2020 of our
2022 Notes at 11% and the issuance of our 2028 Notes at 8.5% and lower LIBOR
rates on our revolving line of credit borrowings.
Investing activities. The Company's main investing activities are capital
expenditures and proceeds from the sale of property, plant, and equipment. In
2021, we sold and leased back a group of properties with net proceeds of
approximately $163.2 million . Capital expenditures increased year-over-year as
the Company reduced the 2020 annual capital expenditures budget due to the
COVID-19 pandemic. In 2021, we acquired SMP for $14.0 million , net of cash
acquired.
Financing activities. The Company's main source of liquidity to fund working
capital requirements is borrowings on our credit facility. In 2021, we redeemed
$150.0 million of our 2028 Notes, which was partially offset by credit facility
borrowings. At December 31, 2020 , we borrowed approximately $40 million of
excess credit facility funds to maintain access to cash during the COVID-19
pandemic. This borrowing was offset by credit facility repayments from operating
cash flows that were generated in 2020. In addition, during 2020 we redeemed and
repurchased the outstanding principal amount of $587.9 million of our 2022
Notes. In the third quarter of 2020, we issued $500 million of our 2028 Notes to
replace the 2022 Notes at a lower interest rate and debt level and paid $10.9
million of issuance fees on the transaction. In the fourth quarter of 2020, we
redeemed $50.0 million of our 2028 Notes. Book overdrafts fluctuate based on the
timing of payments.
As market conditions warrant and subject to our contractual restrictions,
liquidity position, and other factors, we may from time to time seek to
repurchase or retire our outstanding debt through cash purchases and/or
exchanges for other debt or equity securities in open market transactions,
privately negotiated transactions, by tender offer, or otherwise. Any such cash
repurchases by us may be funded by cash on hand or incurring new debt. The
amounts involved in any such transactions, individually or in the aggregate, may
be material. Furthermore, any such repurchases or exchanges may result in our
acquiring and retiring a substantial amount of such indebtedness, which would
impact the trading liquidity of such indebtedness.
In the normal course of business with customers, vendors, and others, we have
entered into off-balance sheet arrangements, such as letters of credit, which
totaled $20 million as of December 31, 2021 . We do not have any other material
off-balance sheet financing arrangements. Our off-balance sheet arrangements are
not likely to have a material effect on our current or future financial
condition, results of operations, liquidity, or capital resources.
Total debt
Total debt atDecember 31, 2021 decreased$100.7 million to$639.3 million from$740.0 million atDecember 31, 2020 , mainly due to cash generated from sale-leaseback transactions and the net cash provided by operating activities in 2021. Total debt outstanding as ofDecember 31, 2021 consisted of the following amounts:$316.0 million borrowings under the Ryerson Credit Facility,$300.0 million under the 2028 Notes,$27.0 million of foreign debt, and$6.0 million of other debt, less$9.7 million of unamortized debt issuance costs. Availability under the Ryerson Credit Facility was$670 million and$277 million atDecember 31, 2021 andDecember 31, 2020 , respectively. For further information, see Note 10: Debt in Part II, Item 8 - Financial Statements and Supplementary Data. Pension Funding The Company made contributions of$23.7 million in 2021,$7.1 million in 2020, and$25.7 million in 2019 to improve the Company's pension plans funded status. AtDecember 31, 2021 , as reflected in Part II. Item 8, Financial Statements and Supplementary Data, Note 11, pension liabilities exceeded plan assets by$95.8 million . The Company anticipates that it will have a minimum required pension contribution of approximately$5.8 million in 2022 under the Employee Retirement Income Security Act of 1974 ("ERISA"), Pension Protection Act in theU.S. , and the Ontario Pension Benefits Act inCanada . The expected future contributions reflect recent pension funding relief measures under the American Rescue Plan Act ("ARPA") passed inMarch 2021 . Future contribution requirements depend on the investment returns on plan assets, the impact of discount rates on pension liabilities, and changes in regulatory requirements. The Company is unable to determine the amount or timing of any such contributions required by ERISA or whether any such contributions would have a material adverse effect on the Company's financial position or cash flows. 42 -------------------------------------------------------------------------------- EffectiveSeptember 24, 2021 , the Ryerson Pension Plan purchased$206.6 million of annuities on behalf of a portion of plan participants which, due to the size of the transaction, resulted in settlement accounting. The pension plan was remeasured as ofSeptember 30, 2021 . The remeasurement resulted in a settlement loss of$98.3 million which was recorded within Other income and (expense), net in the Statement of Operations as ofSeptember 30, 2021 . Changes in returns on plan assets may affect our plan funding, cash flows, and financial condition. Differences between actual plan asset returns and the expected long-term rate of return on plan assets impact the measurement of the following year's pension expense and pension funding requirements. However, we believe that cash flow from operations and the Ryerson Credit Facility described above will provide sufficient funds to make the minimum required contributions. Income Tax Payments
The Company paid taxes on the income of
Material Cash Requirements The Company expects to make approximately$649 million in principal payments to satisfy its debt obligations, consisting of$27 million in foreign debt coming due in 2022,$6 million of other debt coming due between 2023 and 2024,$316 million for the Ryerson Credit Facility coming due in 2025, and$300 million for the 2028 Notes due in 2028. Please refer to Part II. Item 8, Financial Statements and Supplementary Data, Note 10: Debt for further information. The Company leases various assets including real estate, trucks, trailers, mobile equipment, processing equipment, and IT equipment. We have noncancelable operating leases expiring at various times through 2036, and finance leases expiring at various times through 2027. The total amount of future lease payments is estimated to be$278 million with$44 million for the next 12 months. Including leases signed but not yet commenced as ofDecember 31, 2021 , total lease payments are$471 million . Please refer to Part II, Item 8 - Financial Statements and Supplementary Data, Note 6: Leases for further information. The Company expects to pay approximately$32 million of interest on the 2028 Notes, Ryerson Credit Facility, foreign debt, and other debt over the next 12 months and$160 million thereafter. Interest payments related to the variable rate debt were estimated using the weighted average interest rate for the Ryerson Credit Facility, including the effect of the interest rate swaps.
Purchase obligations with suppliers are entered into when we receive firm sales commitments with some of our customers. From
Restructuring
2021
During 2021, the Company paid the remaining $0.5 million of employee-related
costs related to prior year staff reductions. The Company has a $0.7 million
reserve for tenancy-related costs for facilities closed in prior years, which
are expected to be paid through 2025.
2020
In 2020, the Company recorded a$2.2 million charge for employee-related costs primarily for severance costs for corporate staff reductions. The Company paid$1.9 million of the employee costs related to these actions. In addition, the Company paid$0.8 million related to 2019 staff reductions. During 2020, the Company also paid$0.3 million for costs related to facilities closed in prior years and recorded an addition of$0.1 million to the reserve for tenancy-related costs, which was charged to warehousing, delivery, selling, general, and administrative expense in the Consolidated Statements of Operations.
2019
In 2019, the Company recorded a$2.1 million charge for employee-related costs primarily for severance costs for corporate staff reductions. The Company paid$1.2 million for employee costs related to these actions. In addition, the Company paid$0.3 million related to 2018 staff reductions. 43 -------------------------------------------------------------------------------- During 2019, the Company also recorded a$0.3 million charge to increase the reserve for tenancy-related costs for a facility closed in 2013. The Company paid$0.9 million in 2019 for costs related to facilities closed in prior years. Deferred Tax Amounts AtDecember 31, 2021 , the Company had a net deferred tax liability of$94 million comprised primarily of a deferred tax asset of$24 million related to pension liabilities, a deferred tax asset related to postretirement benefits other than pensions of$15 million , deferred tax assets of$10 million related to state, local, and foreign tax loss carryforwards, and$26 million of other deferred taxes relating to accrued compensation and other items, offset by a valuation allowance of$5 million and deferred tax liabilities of$57 million related to fixed assets,$97 million related to inventory, and$10 million related to intangibles. The Company's deferred tax assets include$10 million related to state net operating loss ("NOL") carryforwards and$0.3 million related to foreign NOL carryforwards atDecember 31, 2021 . Due to the volatile macro-economic conditions associated with the COVID-19 pandemic, we may experience fluctuations in our forecasted earnings before income taxes as a result of events which cannot be predicted, which could affect our deferred tax balances. In accordance with ASC Topic 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. After considering both the positive and negative evidence available, in the second quarter of 2009, the Company determined that it was more-likely-than-not that it would not realize a portion of itsU.S. deferred tax assets. As a result, the Company established a valuation allowance against a portion of itsU.S. deferred tax assets. The Company released a portion of the valuation allowance related to one of itsU.S. subsidiaries, JT Ryerson, during 2012. The Company released most of the remainingU.S. related valuation allowance during 2013. In 2018, the Company further reduced its valuation allowance related to state and foreign net operating losses. As ofDecember 31, 2019 , the Company had a valuation allowance of$13.7 million , a decrease of$15.6 million from the prior year mainly related to expiring NOLs and changes toU.S. foreign tax credits previously recorded. As ofDecember 31, 2020 , the company had a valuation allowance of$6.6 million , a decrease of$7.1 million from the prior year mainly related to expiring NOLs and changes toU.S foreign tax credits previously recorded. As ofDecember 31, 2021 , the Company had a valuation allowance of$5.0 million , a decrease of$1.6 million from the prior year mainly related to a release of a valuation allowance on state NOL deferred tax assets, which we now expect to realize due to improved profitability. As described in Note 1 to the Consolidated Financial Statements, the Company assesses the need for a valuation allowance considering all available positive and negative evidence, including past operating results, projections of future taxable income, and the feasibility of ongoing tax planning strategies.
The Company will continue to maintain a valuation allowance on certain
federal and foreign deferred tax assets until, in the opinion of management, taking into account all available positive and negative evidence, the Company determines that such deferred tax assets are more likely than not to to come true.
Critical Accounting Estimates
Preparation of this Form 10-K requires us to make estimates and assumptions that
affect the reported amount of assets and liabilities, disclosure of contingent
assets and liabilities at the date of our financial statements, and the reported
amounts of sales and expenses during the reporting period. Our critical
accounting policies, including the assumptions and judgments underlying them,
are disclosed in Item 8 within Note 1: Summary of Accounting and Financial
Policies. These policies have been consistently applied and address such matters
as revenue recognition, depreciation methods, inventory valuation, asset
impairment recognition, and pension and postretirement expense. While policies
associated with estimates and judgments may be affected by different assumptions
or conditions, we believe our estimates and judgments associated with the
reported amounts are appropriate in the circumstances. Actual results may differ
from those estimates.
We consider the policies discussed below as critical to an understanding of our
financial statements, as application of these policies places the most
significant demands on management's judgment, with financial reporting results
relying on estimation of matters that are uncertain.
Provision for allowances, claims, and doubtful accounts: We perform ongoing
credit evaluations of customers and set credit limits based upon review of the
customers' current credit information, payment history, and the current economic
and industry environments. We monitor customer payments and maintain a provision
for estimated credit losses based on historical experience and specific customer
collection issues that we have identified. Estimation of such losses requires
adjusting historical loss experience for current economic conditions and
judgments about the probable effects of economic conditions on certain
customers. We cannot
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guarantee that the rate of future credit losses will be similar to past
experience. Provisions for allowances and claims are based upon historical
rates, expected trends, and estimates of potential returns, allowances, customer
discounts, and incentives. We consider all available information when assessing
the adequacy of the provision for allowances, claims, and doubtful accounts.
Inventory valuation: Our inventories are stated at the lower of cost or market.
The valuation of our inventories at the lower of cost or market could be subject
to certain estimates; however, the measurement is primarily based on historical
purchasing and sales information rather than forecasted metals pricing.
Inventory costs reflect metal and in-bound freight purchase costs, third-party
processing costs, and internal direct and allocated indirect processing costs.
Cost is primarily determined by the LIFO method. We regularly review inventory
on hand and record provisions for obsolete and slow-moving inventory based on
historical and current sales trends. Changes in product demand and our customer
base may affect the value of inventory on hand which may require higher
provisions for obsolete inventory.
Income Taxes: Our income tax expense, deferred tax assets and liabilities, and
reserve for uncertain tax positions reflect our best estimate of taxes to be
paid. The Company is subject to income taxes in the U.S. and several foreign
jurisdictions. The determination of the consolidated income tax expense requires
judgment and estimation by management. It is possible that actual results could
differ from the estimates that management has used to determine its consolidated
income tax expense.
We record operating loss and tax credit carryforwards and the estimated effect
of temporary differences between the tax basis of assets and liabilities and the
reported amounts in the Consolidated Balance Sheet. We follow detailed
guidelines in each tax jurisdiction when reviewing tax assets recorded on the
balance sheet and provide for valuation allowances as required. Deferred tax
assets are reviewed for recoverability based on historical taxable income, the
expected reversals of existing temporary differences, tax planning strategies,
and on forecasts of future taxable income. The forecasts of future taxable
income require assumptions regarding volume, selling prices, margins, expense
levels, and industry cyclicality. If we are unable to generate sufficient future
taxable income in certain tax jurisdictions, we may be required to record
additional valuation allowances against our deferred tax assets related to those
jurisdictions.
The Company's income tax provisions are based on calculations and assumptions
that are subject to examination by the Internal Revenue Service and other tax
authorities. Although the Company believes that the positions taken on filed tax
returns are reasonable, it has established tax and interest reserves in
recognition that various taxing authorities may challenge the positions taken.
For uncertain tax positions, the Company applies the provisions of relevant
authoritative guidance, which requires application of a "more likely than not"
threshold to the recognition and derecognition of tax positions. The Company's
ongoing assessments of the more likely than not outcomes of tax authority
examinations and related tax positions require significant judgment and can
increase or decrease the Company's effective tax rate.
Long-lived Assets and Other Intangible Assets: Long-lived assets held and used
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. We estimate the
future cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, an
impairment is recognized. Determining whether an impairment has occurred
typically requires various estimates and assumptions, including determining
which undiscounted cash flows are directly related to the potentially impaired
asset, the useful life over which cash flows will occur, their amount, and the
asset's residual value, if any. Any related impairment loss is calculated based
upon comparison of the fair value to the carrying value of the asset. Separate
intangible assets that have finite useful lives are amortized over their useful
lives. An impaired long-lived or intangible asset would be written down to fair
value, based on various available valuation techniques, including the discounted
cash flow method.
Goodwill : We assess the recoverability of the carrying value of recorded
goodwill annually in the fourth quarter of each year or whenever indicators of
potential impairment exist. We test for impairment of goodwill by assessing
various qualitative factors with respect to developments in our business and the
overall economy. Factors that may be considered indicators of impairment
include: deterioration in general economic conditions; declines in the market
conditions of our products, including metals prices; a sustained significant
decline in our share price and market capitalization; reduced future cash flow
estimates; and slower growth rates in our industry, among others. If we
determine that it is more likely than not that the fair value of a reporting
unit is less than the carrying value based on our qualitative assessment, we
will proceed to the goodwill impairment test. We compare the fair value of the
reporting unit in which goodwill resides to its carrying value. If the carrying
amount exceeds the fair value, an impairment loss is recognized in an amount
equal to that excess, not to exceed the carrying amount of the goodwill. The
fair value of the reporting unit is estimated using a combination of an income
approach and a market approach as this combination is deemed to be the most
indicative of our fair value in an orderly transaction between market
participants. An income approach based on discounted future cash flows requires
us to estimate income from operations based on projected results and discount
rates based on a weighted average cost of capital of comparable companies. A
market approach estimates fair value using market multiples of various financial
measures of comparable
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public companies. If these estimates or their related assumptions for commodity
prices and demand change in the future, we may be required to record impairment
charges for these assets.
Based on the impairment test performed on October 1, 2021 , the Company concluded
that the fair value of the reporting unit tested for impairment exceeded the
carrying value. The discount rate for the reporting unit was estimated to be
15.5% at October 1, 2021 . The Company determines a discount rate based on an
estimate of a reasonable risk-adjusted return an investor would expect to
realize on an investment in the reporting unit. Deterioration in market
conditions in our industry or products, changes in expected future cash flows,
expected growth rates, or to discount rates could result in impairment charges
in future periods.
Purchase Price Accounting: Business combinations are accounted for using the
acquisition method of accounting. This method requires the Company to record
assets and liabilities of the business acquired at their estimated fair market
values as of the acquisition date. Any excess of the cost of the acquisition
over the fair value of the net assets acquired is recorded as goodwill. Any
shortfall in the cost of the acquisition compared to the fair value of the net
assets acquired is recorded in the Statement of Operations as a bargain gain.
The Company uses valuation specialists, where necessary, to perform appraisals
and assist in the determination of the fair values of the assets acquired and
liabilities assumed. These valuations require management to make estimates and
assumptions that are critical in determining the fair values of the assets and
liabilities.
Pension and postretirement benefit plan assumptions: We sponsor various benefit
plans covering a portion of our employees for pension and postretirement medical
costs. Statistical methods are used to anticipate future events when calculating
expenses and liabilities related to the plans. The statistical methods include
assumptions about, among other things, the discount rate, expected return on
plan assets, rate of increase of health care costs, and the rate of future
compensation increases. Our actuarial consultants also use subjective factors
such as withdrawal and mortality rates when estimating expenses and liabilities.
The discount rate used for U.S. plans reflects the market rate for high-quality
fixed-income investments on our annual measurement date (December 31 ) and is
subject to change each year. The discount rate was determined by matching, on an
approximate basis, the coupons and maturities for a portfolio of corporate bonds
(rated Aa or better by Moody's Investor Services or AA or better by Standard and
Poor's) to the expected plan benefit payments defined by the projected benefit
obligation. The discount rates used for plans outside the U.S. are based on the
yield of long term high quality corporate bonds, the duration of the liability,
and appropriate judgment.
When calculating pension expense for 2021, we assumed the pension plans' assets
would generate a long-term rate of return between 4.35% and 5.05% for the JT
Ryerson plan (adjusted for the remeasurement in 2021) and 2.05% for the Central
Steel and Wire Company , a JT Ryerson subsidiary, plan, and between 1.75% and
4.25% for the Canadian plans. The expected long-term rate of return assumption
was developed based on historical experience and input from the trustee managing
the plans' assets. The expected long-term rate of return on plan assets is based
on a target allocation of assets, which is based on a goal of earning the
highest rate of return while maintaining risk at acceptable levels. Our
projected long-term rate of return for the JT Ryerson pension plan is slightly
higher than some market indices due to the active management of our plans'
assets, and is supported by the historical returns on our plans' assets. The
plans strive to have assets sufficiently diversified so that adverse or
unexpected results from one security class will not have an unduly detrimental
impact on the entire portfolio. We regularly review actual asset allocation and
the pension plans' investments are periodically rebalanced to the targeted
allocation when considered appropriate. Pension expense increases as the
expected rate of return on plan assets decreases. Lowering the expected
long-term rate of return on plan assets by 50 basis points would have increased
2021 pension expense by approximately $2 million .
Future pension obligations for the U.S. plans were discounted using rates
between of 2.84% and 3.27% at December 31, 2021 . Future pension obligations for
the Canadian plans were discounted using 2.85% at December 31, 2021 . Lowering
the discount rate by 50 basis points would increase the pension liability at
December 31, 2021 by approximately $26 million .
The calculation of other postretirement benefit obligations requires the use of
a number of assumptions, including the assumed discount rate for measuring
future payment obligations. A decrease in the weighted average discount rate of
50 basis points would increase the postretirement benefit liability by
approximately $3 million .
The assumptions used in the actuarial calculation of expenses and liabilities
may differ materially from actual results due to changing market and economic
conditions, higher or lower withdrawal rates, or longer or shorter life spans of
participants. These differences may result in a significant impact on the amount
of pension or postretirement benefit expense we may record in the future.
Legal contingencies: We are involved in a number of legal and regulatory matters
including those discussed in Item 8 within Note 13: Commitments and
Contingencies. We determine whether an estimated loss from a loss contingency
should be accrued by assessing whether a loss is deemed probable and can be
reasonably estimated. We analyze our legal matters based on available
information to assess potential liability. We consult with outside counsel
involved in our legal matters when analyzing potential outcomes. We cannot
determine at this time whether any potential liability related to this
litigation would materially affect our financial position, results of
operations, or cash flows.
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Recent Accounting Pronouncements
Recent accounting pronouncements are discussed in Note 1: Summary of Accounting and Financial Policies in Part II, Item 8 Financial Statements and Supplementary Data.
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