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EX-32.2 - EX-32.2 - Ryerson Holding Corpryi-ex322_9.htm
EX-32.1 - EX-32.1 - Ryerson Holding Corpryi-ex321_6.htm
EX-31.2 - EX-31.2 - Ryerson Holding Corpryi-ex312_8.htm
EX-31.1 - EX-31.1 - Ryerson Holding Corpryi-ex311_7.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended September 30, 2016

or

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

For the transition period from                      to                     .

Commission File Number 001-34735

 

RYERSON HOLDING CORPORATION

(Exact name of registrant as specified in its charter)

 

 

DELAWARE

26-1251524

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

227 W. Monroe St., 27th Floor

Chicago, Illinois 60606

(Address of principal executive offices)

(312) 292-5000

(Registrant’s telephone number, including area code)

 

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

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

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

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

As of November 1, 2016, there were 37,132,019 shares of Common Stock, par value $0.01 per share, outstanding.

 

 

 

 


 

RYERSON HOLDING CORPORATION AND SUBSIDIARY COMPANIES

INDEX

 

 

 

 

PAGE NO.

Part I. Financial Information:

 

 

 

 

 

 

Item 1.

Financial Statements:

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Unaudited)—Three and Nine Months ended September 30, 2016 and 2015

3

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited)—Nine Months ended September 30, 2016 and 2015

4

 

 

 

 

 

 

Condensed Consolidated Balance Sheets—September 30, 2016 (Unaudited) and December 31, 2015

5

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

6

 

 

 

 

 

Item 2.

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

28

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

38

 

 

 

 

 

Item 4.

Controls and Procedures

39

 

 

 

Part II. Other Information:

 

 

 

 

 

 

Item 1.

Legal Proceedings

39

 

 

 

 

 

Item 1A.

Risk Factors

39

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

39

 

 

 

 

 

Item 4.

Mine Safety Disclosures

39

 

 

 

 

 

Item 5.

Other Information

39

 

 

 

 

 

Item 6.

Exhibits

40

 

 

 

Signature

41

 

2


 

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

RYERSON HOLDING CORPORATION AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(In millions, except per share data)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net sales

 

$

735.1

 

 

$

790.0

 

 

$

2,177.5

 

 

$

2,498.4

 

Cost of materials sold

 

 

589.7

 

 

 

639.7

 

 

 

1,721.5

 

 

 

2,032.3

 

Gross profit

 

 

145.4

 

 

 

150.3

 

 

 

456.0

 

 

 

466.1

 

Warehousing, delivery, selling, general and administrative

 

 

109.1

 

 

 

112.8

 

 

 

331.5

 

 

 

343.4

 

Restructuring and other charges

 

 

2.5

 

 

 

 

 

 

2.5

 

 

 

 

Impairment charges on fixed assets

 

 

 

 

 

0.5

 

 

 

 

 

 

1.9

 

Operating profit

 

 

33.8

 

 

 

37.0

 

 

 

122.0

 

 

 

120.8

 

Other income and (expense), net

 

 

(0.2

)

 

 

1.2

 

 

 

(13.2

)

 

 

(10.7

)

Interest and other expense on debt

 

 

(23.6

)

 

 

(25.4

)

 

 

(67.5

)

 

 

(74.5

)

Income before income taxes

 

 

10.0

 

 

 

12.8

 

 

 

41.3

 

 

 

35.6

 

Provision for income taxes

 

 

1.6

 

 

 

6.1

 

 

 

14.0

 

 

 

16.1

 

Net income

 

 

8.4

 

 

 

6.7

 

 

 

27.3

 

 

 

19.5

 

Less: Net income (loss) attributable to noncontrolling interest

 

 

0.2

 

 

 

 

 

 

 

 

 

(0.5

)

Net income attributable to Ryerson Holding Corporation

 

$

8.2

 

 

$

6.7

 

 

$

27.3

 

 

$

20.0

 

Comprehensive income (loss)

 

$

6.9

 

 

$

(4.7

)

 

$

34.7

 

 

$

6.3

 

Less: Comprehensive income (loss) attributable to noncontrolling interest

 

 

0.1

 

 

 

(0.2

)

 

 

 

 

 

(0.8

)

Comprehensive income (loss) attributable to Ryerson Holding Corporation

 

$

6.8

 

 

$

(4.5

)

 

$

34.7

 

 

$

7.1

 

Basic and diluted earnings per share

 

$

0.23

 

 

$

0.21

 

 

$

0.82

 

 

$

0.62

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

 

3


 

RYERSON HOLDING CORPORATION AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

27.3

 

 

$

19.5

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

31.8

 

 

 

33.9

 

Stock-based compensation

 

 

1.0

 

 

 

0.5

 

Deferred income taxes

 

 

13.4

 

 

 

15.0

 

Provision for allowances, claims and doubtful accounts

 

 

2.1

 

 

 

1.9

 

(Gain) loss on retirement of debt

 

 

7.2

 

 

 

(0.3

)

Other-than-temporary impairment charge on available-for-sale investments

 

 

2.8

 

 

 

12.3

 

Impairment charges on fixed assets

 

 

 

 

 

1.9

 

Restructuring and other charges

 

 

2.5

 

 

 

 

Premium and fees paid related to debt modification

 

 

(15.6

)

 

 

 

Other items

 

 

(0.2

)

 

 

(0.6

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(54.9

)

 

 

21.7

 

Inventories

 

 

(67.3

)

 

 

91.8

 

Other assets

 

 

5.7

 

 

 

9.8

 

Accounts payable

 

 

38.2

 

 

 

30.0

 

Accrued liabilities

 

 

17.9

 

 

 

5.1

 

Accrued taxes payable/receivable

 

 

1.3

 

 

 

(1.0

)

Deferred employee benefit costs

 

 

(36.1

)

 

 

(48.9

)

Net adjustments

 

 

(50.2

)

 

 

173.1

 

Net cash provided by (used in) operating activities

 

 

(22.9

)

 

 

192.6

 

Investing activities:

 

 

 

 

 

 

 

 

Acquisitions, net of cash acquired

 

 

 

 

 

(7.7

)

Decrease in restricted cash

 

 

0.2

 

 

 

0.2

 

Capital expenditures

 

 

(19.7

)

 

 

(22.3

)

Proceeds from sale of property, plant and equipment

 

 

3.2

 

 

 

2.8

 

Net cash used in investing activities

 

 

(16.3

)

 

 

(27.0

)

Financing activities:

 

 

 

 

 

 

 

 

Net proceeds from issuance of common stock

 

 

71.5

 

 

 

 

Long-term debt issued

 

 

650.0

 

 

 

 

Repayment of debt

 

 

(689.0

)

 

 

(59.9

)

Net proceeds (repayments) of short-term borrowings

 

 

3.2

 

 

 

(104.7

)

Net increase (decrease) in book overdrafts

 

 

20.1

 

 

 

(4.5

)

Long-term debt issuance costs

 

 

(5.2

)

 

 

 

Credit facility issuance costs

 

 

 

 

 

(3.9

)

Principal payments on capital lease obligations

 

 

(3.9

)

 

 

(1.2

)

Contributions from non-controlling interest

 

 

0.3

 

 

 

 

Net cash provided by (used in) financing activities

 

 

47.0

 

 

 

(174.2

)

Net increase (decrease) in cash and cash equivalents

 

 

7.8

 

 

 

(8.6

)

Effect of exchange rate changes on cash and cash equivalents

 

 

2.2

 

 

 

(3.1

)

Net change in cash and cash equivalents

 

 

10.0

 

 

 

(11.7

)

Cash and cash equivalents—beginning of period

 

 

63.2

 

 

 

60.0

 

Cash and cash equivalents—end of period

 

$

73.2

 

 

$

48.3

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest paid to third parties

 

$

49.2

 

 

$

49.2

 

Income taxes, net

 

 

1.4

 

 

 

2.6

 

Noncash investing activities:

 

 

 

 

 

 

 

 

Asset additions under capital leases

 

$

2.1

 

 

$

1.8

 

See Notes to Condensed Consolidated Financial Statements.

 

4


 

RYERSON HOLDING CORPORATION AND SUBSIDIARY COMPANIES

Condensed Consolidated Balance Sheets

(In millions, except shares)    

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

73.2

 

 

$

63.2

 

Restricted cash

 

 

1.0

 

 

 

1.2

 

Receivables less provision for allowances, claims and doubtful accounts of $5.2 in 2016 and 2015

 

 

360.1

 

 

 

305.7

 

Inventories

 

 

625.2

 

 

 

555.8

 

Prepaid expenses and other current assets

 

 

27.4

 

 

 

32.8

 

Total current assets

 

 

1,086.9

 

 

 

958.7

 

Property, plant, and equipment, at cost

 

 

667.3

 

 

 

654.5

 

Less: Accumulated depreciation

 

 

274.0

 

 

 

254.2

 

Property, plant and equipment, net

 

 

393.3

 

 

 

400.3

 

Deferred income taxes

 

 

12.5

 

 

 

31.8

 

Other intangible assets

 

 

42.1

 

 

 

46.2

 

Goodwill

 

 

103.2

 

 

 

103.2

 

Deferred charges and other assets

 

 

5.3

 

 

 

5.0

 

Total assets

 

$

1,643.3

 

 

$

1,545.2

 

Liabilities

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

265.0

 

 

$

206.3

 

Salaries, wages and commissions

 

 

35.5

 

 

 

26.3

 

Other accrued liabilities

 

 

60.8

 

 

 

52.0

 

Short-term debt

 

 

20.0

 

 

 

22.0

 

Current portion of deferred employee benefits

 

 

9.2

 

 

 

9.1

 

Total current liabilities

 

 

390.5

 

 

 

315.7

 

Long-term debt

 

 

957.9

 

 

 

1,001.5

 

Deferred employee benefits

 

 

291.4

 

 

 

327.7

 

Taxes and other credits

 

 

36.7

 

 

 

41.1

 

Total liabilities

 

 

1,676.5

 

 

 

1,686.0

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

 

(0.2

)

 

 

0.1

 

Equity

 

 

 

 

 

 

 

 

Ryerson Holding Corporation stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 7,000,000 shares authorized and no shares issued at 2016 and 2015

 

 

 

 

 

 

Common stock, $0.01 par value; 100,000,000 shares authorized; 37,344,519 shares issued at 2016 and 32,312,200 issued at 2015

 

 

0.4

 

 

 

0.3

 

Capital in excess of par value

 

 

375.1

 

 

 

302.6

 

Accumulated deficit

 

 

(103.6

)

 

 

(130.9

)

Treasury stock at cost – Common stock of 212,500 shares in 2016 and 2015

 

 

(6.6

)

 

 

(6.6

)

Accumulated other comprehensive loss

 

 

(299.6

)

 

 

(307.0

)

Total Ryerson Holding Corporation stockholders’ equity (deficit)

 

 

(34.3

)

 

 

(141.6

)

Noncontrolling interest

 

 

1.3

 

 

 

0.7

 

Total equity (deficit)

 

 

(33.0

)

 

 

(140.9

)

Total liabilities and equity

 

$

1,643.3

 

 

$

1,545.2

 

 

See Notes to Condensed Consolidated Financial Statements.

 

5


 

RYERSON HOLDING CORPORATION AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

NOTE 1: FINANCIAL STATEMENTS

Ryerson Holding Corporation (“Ryerson Holding”), a Delaware corporation, is the parent company of Joseph T. Ryerson & Son, Inc. (“JT Ryerson”), a Delaware corporation. Affiliates of Platinum Equity, LLC (“Platinum”) own approximately 21,037,500 shares of our common stock, which is approximately 57% of our issued and outstanding common stock.

Ryerson Holding conducts materials distribution operations in the United States through JT Ryerson, in Canada through its indirect wholly-owned subsidiary Ryerson Canada, Inc., a Canadian corporation (“Ryerson Canada”) and in Mexico through its 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, 2016 and 2015, respectively:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

Product Line

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Carbon Steel Flat

 

 

29

%

 

 

25

%

 

 

27

%

 

 

24

%

Carbon Steel Plate

 

 

9

 

 

 

11

 

 

 

9

 

 

 

11

 

Carbon Steel Long

 

 

13

 

 

 

16

 

 

 

14

 

 

 

16

 

Stainless Steel Flat

 

 

17

 

 

 

15

 

 

 

16

 

 

 

16

 

Stainless Steel Plate

 

 

4

 

 

 

4

 

 

 

4

 

 

 

4

 

Stainless Steel Long

 

 

3

 

 

 

3

 

 

 

4

 

 

 

4

 

Aluminum Flat

 

 

16

 

 

 

17

 

 

 

16

 

 

 

16

 

Aluminum Plate

 

 

3

 

 

 

3

 

 

 

3

 

 

 

3

 

Aluminum Long

 

 

4

 

 

 

4

 

 

 

5

 

 

 

4

 

Other

 

 

2

 

 

 

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, 2016 and for the three-month and nine-month periods ended September 30, 2016 and 2015 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, 2015.

 

 

NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS

Impact of Recently Issued Accounting Standards—Adopted

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” The update requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update is effective for fiscal years beginning after December 15, 2015 and represents a change in accounting principle. In addition, this update requires retrospective application, which resulted in the reclassification of $11.0 million of capitalized debt issuance costs from deferred charges and other assets to long-term debt at December 31, 2015.

 

6


 

In April 2015, the FASB issued ASU 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” The amendments in this update provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the update specifies that the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. The update further specifies that the customer should account for a cloud computing arrangement as a service contract if the arrangement does not include a software license. ASU 2015-05 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. We adopted this guidance for our fiscal year beginning January 1, 2016. The adoption of this guidance did not have an impact on our consolidated financial statements.

In September 2015, the FASB issued ASU 2015-16, “Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments.” The amendment eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead the acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment. The update is effective for fiscal years beginning after December 15, 2015. We adopted this guidance for our fiscal year beginning January 1, 2016. The adoption of this guidance did not have an impact on our consolidated financial statements on prior acquisitions.

In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting.” The amendment simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The update is effective for interim and annual periods beginning after December 15, 2016. Early adoption is permitted. We early adopted this guidance as of April 1, 2016. The adoption of this guidance did not have a material 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, including ASU 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” ASU 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing” and ASU 2016-12, “Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients” outlines a comprehensive model for all entities to use in accounting for revenue arising from contracts with customers as well as required disclosures. Entities have the option of using either a full retrospective or modified approach to adopt the new guidance. The new revenue standard is effective for interim reporting periods within annual reporting periods beginning after December 15, 2017. Early adoption is permitted. We will adopt this guidance for our fiscal year beginning January 1, 2018. We are still assessing the impact of adoption on our consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” The guidance in ASU 2014-15 sets forth management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern as well as required disclosures. ASU 2014-15 indicates that, when preparing financial statements for interim and annual periods, management should evaluate whether conditions or events, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern one year from the date the financial statements are issued or are available to be issued. This evaluation should include consideration of conditions and events that are either known or are reasonably knowable at the date the financial statements are issued or are available to be issued, as well as whether it is probable that management’s plans to address the substantial doubt will be implemented and, if so, whether it is probable that the plans will alleviate the substantial doubt. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods and annual periods thereafter. Early adoption is permitted. We will adopt this guidance for our fiscal year ending December 31, 2016. The adoption of this guidance is not expected to have an impact on our consolidated financial statements.

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. The 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

 

7


 

periods beginning after December 15, 2017.  Early adoption is permitted. We will adopt this guidance for our fiscal year beginning January 1, 2018. We are still assessing the impact of adoption on our consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02, “Leases” codified in ASC 842, “Leases.” The guidance requires that lessees will be required 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. We are still assessing the impact of adoption on our consolidated financial statements.

 

In March 2016, the FASB issued 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 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. We will adopt this guidance for our fiscal year beginning January 1, 2017, including interim periods within that reporting period. The adoption of this guidance is not expected to have a material impact 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.

 

 

 

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, 2016 and December 31, 2015 as follows:

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

(In millions)

 

In process and finished products

 

$

625.2

 

 

$

555.8

 

 

 

8


 

If current cost had been used to value inventories, such inventories would have been $117 million and $122 million lower than reported at September 30, 2016 and December 31, 2015, respectively. Approximately 91% of inventories are accounted for under the LIFO method at September 30, 2016 and December 31, 2015. 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 $12.5 million and $37.9 million at September 30, 2016 and December 31, 2015, respectively.

The Company has consignment inventory at certain customer locations, which totaled $9.9 million at September 30, 2016 and December 31, 2015.

 

 

NOTE 4: GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill, which represents the excess of cost over the fair value of net assets acquired, amounted to $103.2 million at September 30, 2016 and December 31, 2015. 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, 2015, and it was determined that no impairment existed in 2015.

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

 

NOTE 5: ACQUISITIONS

On August 3, 2015, the Company acquired all of the issued and outstanding capital stock of Southern Tool Steel, Inc. (“Southern Tool”). Southern Tool is a distributor of long products, predominantly processed bars and tool steel, and is based in Chattanooga, TN. The acquisition is not material to our consolidated financial statements.


NOTE 6: LONG-TERM DEBT

Long-term debt consisted of the following at September 30, 2016 and December 31, 2015:

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

(In millions)

 

Ryerson Credit Facility

 

$

277.2

 

 

$

272.2

 

9.00% Senior Secured Notes due 2017

 

 

 

 

 

569.9

 

11.25% Senior Notes due 2018

 

 

48.5

 

 

 

170.4

 

11.00% Senior Secured Notes due 2022

 

 

650.0

 

 

 

 

Foreign debt

 

 

20.0

 

 

 

22.0

 

Unamortized debt issuance costs and discounts

 

 

(17.8

)

 

 

(11.0

)

Total debt

 

 

977.9

 

 

 

1,023.5

 

Less: Short-term foreign debt

 

 

20.0

 

 

 

22.0

 

Total long-term debt

 

$

957.9

 

 

$

1,001.5

 

 

Ryerson Credit Facility

On July 24, 2015, Ryerson terminated its $1.35 billion revolving credit facility agreement (the “Old Credit Facility”) and entered into a new $1.0 billion revolving credit agreement (the “Ryerson Credit Facility”). Borrowings under the Ryerson Credit Facility were used to repay indebtedness under the Old Credit Facility. The Ryerson Credit Facility has a maturity date of the earlier of (a) July 24, 2020 or (b) 60 days prior to the stated maturity of any outstanding indebtedness with a principal amount of $50,000,000 or more. As a result of the Ryerson Credit Facility, the Company recorded a $2.9 million charge in the third quarter of 2015 to write-off a portion of the issuance costs associated with the Old Credit Facility.

 

9


 

At September 30, 2016, Ryerson had $277.2 million of outstanding borrowings, $16 million of letters of credit issued and $295 million available under the Ryerson Credit Facility compared to $272.2 million of outstanding borrowings, $17 million of letters of credit issued and $185 million available at December 31, 2015. 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 aggregate value of all inventory owned by a borrower (and in the case of Canadian accounts, a Canadian guarantor), with such inventory adjusted to exclude various ineligible inventory, including, among other things, (i) any inventory that is classified as “supplies” or is unsaleable in the ordinary course of business, (ii) 50% of the value of any inventory that (A) has not been sold or processed within a 180 day period and (B) which is calculated to have more than 365 days of supply based upon the immediately preceding 6 months consumption, and (iii) 50% of the value of inventory classified as partial inventory pieces on the basis that the inventory has been cut below sales lengths customary for such inventory. Qualified cash consists of cash in an eligible deposit account that is subject to customary restrictions and liens in favor of the lenders. The weighted average interest rate on the borrowings under the Ryerson Credit Facility was 2.6 percent and 2.1 percent at September 30, 2016 and December 31, 2015, respectively.

The $1.0 billion Ryerson Credit Facility has an allocation of $875 million to the Company’s subsidiaries in the United States and an allocation of $125 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 pricing loans in U.S. Dollars made at its “base rate” and the 30 day LIBOR rate plus 1.00%), (B) the prime rate (the greatest of the Bank of Canada overnight rate plus 0.50%, 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 0.75% and the spread over the LIBOR and for the bankers’ acceptances is between 1.25% and 1.75%, 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 0.25%.

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

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

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

The lenders under the Ryerson Credit Facility have the ability to 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.

Proceeds from borrowings under the Ryerson Credit Facility and repayments of borrowings thereunder that are reflected in the Condensed Consolidated Statements of Cash Flows represent borrowings under the Company’s revolving credit agreement with original maturities greater than three months. Net proceeds (repayments) under the Ryerson Credit Facility represent borrowings under the Ryerson Credit Facility with original maturities less than three months.

 

10


 

2017, 2018 and 2022 Notes

On October 10, 2012, JT Ryerson issued $300 million in aggregate principal amount of the 11.25% Senior Notes due 2018 (the “2018 Notes”). The remaining $48.5 million of the 2018 Notes bears interest at a rate of 11.25% per annum. The 2018 Notes are fully and unconditionally guaranteed on a senior unsecured 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 2018 Notes are not secured.

The 2018 Notes became redeemable, in whole or in part, on October 15, 2015, at specified redemption prices. If a change of control occurs, JT Ryerson must offer to purchase the 2018 Notes at 101% of their principal amount, plus accrued and unpaid interest. See Note 15 “Subsequent Events” for additional detail.

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 net proceeds from the issuance of the 2022 Notes, along with borrowings under the Ryerson Credit Facility, was used to (i) repurchase and/or redeem in full the $569.9 million balance of JT Ryerson’s 9.00% Senior Secured Notes due 2017 (the “2017 Notes”), plus accrued and unpaid interest thereon up to, but not including, the repayment date, (ii) repurchase $95.0 million of 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 fees paid to the creditors and unamortized debt 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 modified debt were capitalized and are being amortized over the life of the modified debt using the effective interest method.

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, money, 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 2018 Notes and 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.

As of September 30, 2016, zero, $48.5 million and $650.0 million of the original outstanding principal amount of the 2017 Notes, 2018 Notes and 2022 Notes remain outstanding, respectively. The Company has repurchased and in the future may repurchase long-term notes in the open market. See Note 15 “Subsequent Events” for additional detail.

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.

 

11


 

During the first nine months of 2015, a principal amount of $30.1 million of the 2017 Notes were repurchased for $29.4 million and retired, resulting in the recognition of a $0.7 million gain within other income and (expense), net on the Condensed Consolidated Statement of Comprehensive Income. During the first nine months of 2015, a principal amount of $30.1 million of the 2018 Notes were repurchased for $30.5 million and retired, resulting in the recognition of a $0.4 million loss within other income and (expense), net on the Condensed Consolidated Statement of Comprehensive Income.

Foreign Debt

At September 30, 2016, Ryerson China’s foreign borrowings were $19.9 million, which were owed to banks in Asia at a weighted average interest rate of 4.3% per annum and secured by its inventory and property, plant and equipment. At December 31, 2015, Ryerson China’s foreign borrowings were $21.8 million, which were owed to banks in Asia at a weighted average interest rate of 4.3% per annum and secured by its inventory and property, plant and equipment. Other foreign borrowings were $0.1 million and $0.2 million at September 30, 2016 and December 31, 2015, respectively.

Availability under the foreign credit lines was $26 million and $23 million at September 30, 2016 and December 31, 2015, respectively. Letters of credit issued by our foreign subsidiaries were $1 million and $2 million at September 30, 2016 and December 31, 2015, respectively.

 

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, 2016 and 2015 for the Ryerson pension plans and postretirement benefits other than pension:

 

 

 

Three Months Ended September 30,

 

 

 

Pension Benefits

 

 

Other Benefits

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(In millions)

 

Components of net periodic benefit (credit) cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest cost

 

$

8

 

 

$

9

 

 

$

1

 

 

$

1

 

Expected return on assets

 

 

(12

)

 

 

(11

)

 

 

 

 

 

 

Recognized actuarial (gain) loss

 

 

3

 

 

 

3

 

 

 

(2

)

 

 

(2

)

Amortization of prior service credit

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

Net periodic benefit (credit) cost

 

$

(1

)

 

$

1

 

 

$

(2

)

 

$

(2

)

 

 

 

Nine Months Ended September 30,

 

 

 

Pension Benefits

 

 

Other Benefits

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

(In millions)

 

Components of net periodic benefit (credit) cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

1

 

 

$

1

 

 

$

 

 

$

 

Interest cost

 

 

22

 

 

 

28

 

 

 

2

 

 

 

3

 

Expected return on assets

 

 

(34

)

 

 

(35

)

 

 

 

 

 

 

Recognized actuarial (gain) loss

 

 

9

 

 

 

10

 

 

 

(6

)

 

 

(6

)

Amortization of prior service credit

 

 

 

 

 

 

 

 

(2

)

 

 

(2

)

Net periodic benefit (credit) cost

 

$

(2

)

 

$

4

 

 

$

(6

)

 

$

(5

)

 

The Company has contributed $21 million to the pension plan fund through the nine months ended September 30, 2016 and anticipates that it will have a minimum required pension contribution funding of approximately $1 million for the remaining three months of 2016.

 

 

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 (“Portland Harbor”). On February 9, 2016, the EPA published its Final Remedial Investigation Report. On June 8, 2016, the EPA published both the Draft Feasibility Study and associated Superfund Proposed Plan (“Proposed Plan”). The Proposed Plan includes a combination of dredging, capping and enhanced natural recovery that would take approximately seven years to construct plus additional time for monitored natural recovery, at an estimated overall cost of $745.7 million. The public comment period on the Proposed Plan commenced on June 9, 2016, and closed on

 

12


 

September 6, 2016. 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 Proposed Plan will be executed as currently proposed, 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 and 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 other claims and actions at September 30, 2016 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. We may enter into metal commodity futures and options contracts periodically 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. The Company currently does not account for its derivative contracts as hedges but rather marks them to market with a corresponding offset to current earnings. The Company regularly reviews the creditworthiness of its derivative counterparties and does not expect to incur a significant loss from the failure of any counterparties to perform under any agreements.

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, 2016 and December 31, 2015:

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

 

 

Fair Value

 

 

 

 

Fair Value

 

Derivatives not designated as hedging instruments under ASC 815

 

Balance Sheet Location

 

September 30, 2016

 

 

December 31, 2015

 

 

Balance Sheet Location

 

September 30, 2016

 

 

December 31, 2015

 

 

 

(In millions)

 

Foreign exchange contracts

 

Prepaid expenses and

other current assets

 

$

 

 

$

0.1

 

 

Other accrued

liabilities

 

$

 

 

$

 

Commodity contracts

 

Prepaid expenses and

other current assets

 

 

5.6

 

 

 

 

 

Other accrued

liabilities

 

 

0.9

 

 

 

3.5

 

Total derivatives

 

 

 

$

5.6

 

 

$

0.1

 

 

 

 

$

0.9

 

 

$

3.5

 

 

As of September 30, 2016 and December 31, 2015, the Company’s foreign currency exchange contracts had a U.S. dollar notional amount of $1.7 million and $1.6 million, respectively. As of September 30, 2016 and December 31, 2015, the Company had 2,820 tons and 177 tons, respectively, of nickel futures or option contracts related to forecasted purchases. As of September 30, 2016 and December 31, 2015, the Company had 29,395 tons and 15,120 tons, respectively, of hot roll coil option contracts related to forecasted purchases and sales. The Company has aluminum price swaps related to forecasted purchases, which had a notional amount of 10,525 tons and 13,878 tons as of September 30, 2016 and December 31, 2015, respectively. As of September 30, 2016 and December 31, 2015, the Company had 156,000 gallons and 533,000 gallons, respectively, of diesel fuel hedge contracts related to forecasted purchases.

 

13


 

The following table summarizes the location and amount of gains and losses reported in our Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015:

 

 

 

 

 

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

 

Derivatives not designated as

 

Location of Gain/(Loss) Recognized

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

hedging instruments under ASC 815

 

in Income on Derivatives

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

 

 

(In millions)

 

Metal commodity contracts

 

Cost of materials sold

 

$

1.7

 

 

$

(3.1

)

 

$

9.0

 

 

$

(10.5

)

Diesel fuel hedges

 

Warehousing, delivery, selling, general and administrative

 

 

 

 

 

(0.3

)

 

 

0.1

 

 

 

(0.2

)

Foreign exchange contracts

 

Other income and (expense), net

 

 

 

 

 

0.1

 

 

 

(0.1

)

 

 

0.1

 

Total

 

 

 

$

1.7

 

 

$

(3.3

)

 

$

9.0

 

 

$

(10.6

)

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, 2016:

 

 

 

At September 30, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

 

(In millions)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid and other current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Common stock—available-for-sale investment

 

$

1.1

 

 

$

 

 

$

 

Mark-to-market derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

$

 

 

$

5.6

 

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Mark-to-market derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

$

 

 

$

0.9

 

 

$

 

 

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, 2015:

 

 

 

At December 31, 2015