IRVING, Texas, Dec. 17 /PRNewswire-FirstCall/ -- Commercial Metals Company
(NYSE: CMC) today reported net earnings of $62.0 million or $0.54 per diluted
share on net sales of $2.4 billion for the quarter ended November 30, 2008.
This compares with net earnings of $69.2 million or $0.57 per diluted share on
net sales of $2.1 billion last year. The period's results included pre-tax
LIFO income of a quarterly record $114 million or after tax $0.65 per diluted
share. This compares with pre-tax LIFO income of $4.3 million or after tax
$0.02 per diluted share in last year's first quarter. At quarter end, the
LIFO reserve totaled $449 million. LIFO is an inventory costing method that
assumes the most recent inventory purchases or goods manufactured are sold
first which, in periods of falling prices, results in an income effect that
eliminates deflationary costs from net income. Changes in LIFO are not
write-ups or market adjustments. They are changes in cost components based on
an assumption of inventory flows.
Management had projected an earnings range of $0.35 to $0.45 per diluted
share assuming $50 million pre-tax LIFO income (after tax $0.28 per diluted
share) for the quarter. Actual earnings per diluted share were $0.54 with a
LIFO income of $0.65 per diluted share. Operationally, without considering
the LIFO effect, the Company underperformed its projection by a range of $0.18
to $0.28 per diluted share. The LIFO income arose from steep declines in the
cost of ferrous scrap during the quarter and a concerted effort to lower
inventories.
Selling, general and administrative expenses in the first quarter included
$12.7 million of costs associated with the investment in the global deployment
of SAP software compared to $10.3 million in last year's first quarter;
project to date we have expensed $101.4 million. Other SAP costs of
$93.7 million have been capitalized since inception of the project, of which
$12.2 million was capitalized in the current quarter.
General Conditions
Murray R. McClean, Chairman, President and CEO, said, "The global
liquidity crisis has frozen metal markets causing a downward spiral of
confidence. The quarter witnessed the complete collapse of ferrous scrap
pricing with a benchmark shredded scrap price falling $421 a ton during the
period, including uncharacteristic mid-month reductions during
October/November. Management had anticipated the downward direction of
ferrous scrap pricing, but not the accelerated fall. Decreasing prices
coupled with concerted efforts to lower inventory quantities resulted in the
reversal of previous LIFO charges, but to a greater degree than estimated.
LIFO mitigated some, but not all, of the losses on inventory as prices
plummeted. Our Americas Recycling segment incurred significant losses as it
lowered its inventories. The Americas Mills segment recorded all-time record
quarterly earnings on the strength of LIFO income. The lower pricing
environment was a benefit to the Americas Fabrication and Distribution segment
as lower cost material enabled margin expansion. Falling prices, as well as
continual investment in Croatia, led to losses in the International Mills
operations. International Fabrication and Distribution continued to be
profitable, but at lower levels."
Americas Recycling
According to McClean, "Adjusted operating loss of $28.0 million was an
abrupt reversal to a series of all-time record profits. Pre-tax LIFO income
of $24.7 million absorbed much of the brunt; the prior year's adjusted
operating profit was $16.9 million with $1.8 million in pre-tax LIFO expense.
Ferrous scrap prices fell continuously throughout the quarter with the average
ferrous scrap sales price for the first quarter being $213 per short ton, a
decline of only 9% from last year's first quarter, but a decline of 53% from
the fourth quarter last year. With the financial crisis eroding the economy,
consumers all but withdrew from the market. With demand waning, our plants
directed material to our own mills and curtailed their own purchasing.
Shipments of ferrous scrap plummeted to 498 thousand tons, a drop of 29% from
last year's first quarter. Nonferrous pricing declined 22% from the first
quarter of last year, dropping throughout the quarter to the point where
average pricing in November was 51% lower than August. Nonferrous shipments
fell 22% compared to last year's first quarter. Contract nonperformance was a
continuing challenge. We exported 32% of our nonferrous scrap tonnage during
the quarter."
Americas Mills
McClean said, "On the strength of $75.3 million of pre-tax LIFO income
($3.9 million income in the first quarter of last year) generated
predominantly by the severe drop in metal prices, our Americas Mills segment's
adjusted operating profit of $118.7 million was an all-time quarterly record.
The LIFO reversal lessened the impact of the freefall of ferrous scrap pricing
as higher priced material made its way through production costs to finished
goods.
"It was a quarter of declining trends. Our steel mills ran at 69% of
capacity for the quarter, a rate achieved by a strong September offset by
weakening demand the rest of the quarter. Sales revenues were comparable to
last year's first quarter, a product of a higher average selling price against
declining volume. Our steel mills' adjusted operating profit of $101.3
million was up 54% compared to the prior year first quarter on the strength of
$66.5 million pre-tax LIFO income compared to $2.9 million pre-tax LIFO income
in the prior year. A bright spot in the quarter was the metal margin; at
$460 per ton it was 36% above the prior year's first quarter as the backlog
from the summer's record pricing was shipped. The price of ferrous scrap
consumed during the quarter rose 37% compared to last year's first quarter.
More telling of current trends, the average cost of scrap purchased during the
quarter fell 36% versus the average of the fourth quarter of last year. Our
average selling price was up $211 per ton to $796 per ton while the average
selling price for finished goods was up $207 per ton to $822 per ton. Sales
volumes declined 27% to 432 thousand tons. Rebar shipments were down 17% and
merchant tonnage declined 36% as service centers continue to destock. The
price premium of merchant bar over reinforcing bar averaged $187 per ton. On
a quarter-to-quarter basis, tonnage melted for the first quarter was down 30%
to 398 thousand tons while tonnage rolled declined 25% to 366 thousand tons as
we adjusted production to meet falling demand. Lower production rates
resulted in overall decreases in electrode, alloys, and energy costs though
the cost per ton rose."
McClean added, "Our copper tube mill reported an adjusted operating profit
of $17.4 million, substantially above the prior year first quarter of
$3.3 million. The mill recorded pre-tax LIFO income of $8.7 million during
the quarter compared to $1 million last year. Copper pricing is off 64% from
its May 2008 high; residential construction was dismal and commercial
construction weakened. The mill hedged its inventory position throughout the
period of declining prices and was protected against the bulk of the
exposures. Pounds shipped fell 8% to 10.8 million pounds. The average copper
selling price declined 52 cents to $3.77 per pound; however, metal spreads
increased 40 cents per pound. The cost of copper scrap decreased 34 cents to
$2.94 per pound. Copper tube production decreased 14% to 10 million pounds
compared to last year's first quarter."
Americas Fabrication & Distribution
McClean added, "The segment finally escaped the eroding effects of
constantly higher prices and LIFO charges. The deflation in material costs
resulted in margin expansion, a reversal of the negative LIFO hits of previous
quarters, and lower reserves for anticipated job losses. Adjusted operating
income was $66.6 million compared to $30.4 million in the previous year's
first quarter. Pre-tax LIFO income was $7.4 million compared to pre-tax LIFO
expense of $4.3 million last year. Of note, the $7.4 million LIFO income was
the net of $34.6 million of income for the fabrication units against a
$27.2 million pre-tax LIFO expense for the distribution operations as
in-transit material significantly increased inventory levels. The composite
average fab selling price (excluding stock and buyouts) increased 25% to
$1,274 a ton. Rebar fab had a solid quarter as sales and volumes were
positively impacted by the recent acquisitions of CMC Coating and CMC Regional
Steel; profitability varied by geography -- stronger in the Southwest, less so
on the coasts. Construction services, structural fab, post, and joist and
deck were all profitable though joist and deck continues an unfavorable
comparison to the prior year. Absent the large LIFO charge, our domestic
steel import and distribution operation had a strong quarter led by pipe and
SBQ demand from the energy sector."
International Mills
McClean said, "Rapidly declining prices in Poland, continued high
production costs in Croatia and a strengthening U.S. dollar resulted in an
adjusted operating loss of $16.7 million for this segment compared to a small
loss in the first quarter last year. CMC Poland suffered an adjusted
operating loss of $8.1 million as pricing fell throughout the quarter
requiring market valuation adjustments for inventory held at quarter end. The
mill acted aggressively to lower its inventories; shipments totaled
295 thousand tons (35 thousand tons of billets) compared to 268 thousand tons
(33 thousand tons of billets) last year. Sales were aided by customer
avoidance of imports in declining markets with their longer lead times and
anticipation of possible price increases in January. For the first quarter,
tons melted were 290 thousand equal to last year and tons rolled were
237 thousand, again comparable to last year. Average selling prices increased
15% to PLN 1,714 per ton (including 12% billets) from PLN 1,489 per ton
(including 12% billets) in last year's first quarter. Of significance, the
average selling price in the first quarter dropped some 18% from the fourth
quarter.
The cost of scrap entering production increased 9%, and the average metal
margin increased PLN 144 to PLN 767 compared to the previous year's first
quarter. The Polish zloty fell 28% against the U.S. dollar during the
quarter.
"The turnaround at CMCS (Croatia) is contingent upon the successful
completion of our capital expenditure programs for a replacement furnace and
improvements to the continuous caster. We are scaling back the other
production lines for welded and drawn tube to match reduced demand. We rolled
and sold 18 thousand tons for the quarter. Our adjusted operating loss was
$8.6 million."
International Fabrication & Distribution
"Though continuing profitable, the International Fabrication and
Distribution segment saw adjusted operating profit fall 44% to $14.9 million,"
according to McClean. "The global financial crisis is precipitating dramatic
reductions in order intake and noncompliance with contracts. Customers are
not willing to be exposed to the lead times for imported material in a
volatile pricing environment. Management is taking an aggressive stance
against customers who fail to honor contractual commitments. Our European
operations were particularly affected and took significant reserves for
possible losses. On a positive note, our Australian import and service center
operations had near record profitability and increased market share; the weak
Australian dollar was a plus. Our raw materials distribution unit enjoyed a
strong quarter. Our fab shops in Poland and Germany combined incurred a loss
as higher priced older material was used on newer, lower priced jobs. Our
Asian recycling operation incurred a loss as ferrous scrap prices plunged and
inventory write downs were necessary."
Financial Condition
McClean said, "Our financial position remains strong and will get
stronger. The anticipated conversion of working capital into cash has begun,
though not as rapid as initially anticipated. In the first quarter inventory
reductions were slowed by the dramatic decline in order flow; working capital
was also affected by the usual payment of year end obligations in this
quarter. We had a current ratio of 2.1, contractual capacity of $373 million
under our revolver, and $120 million unused capacity under our accounts
receivable securitization program at November 30, 2008. Our coverage ratios
remain strong, both on domestic borrowings as well as the separate borrowings
of CMCZ. We have a $100 million debt repayment obligation due in February
2009 and, subsequent to that, no significant principal repayments due for the
next three years."
Outlook
McClean continued, "We remain sober about near-term prospects. Global
liquidity remains a real concern, confidence among suppliers, customers, and
investors is low, and there is uncertainty about the efficiency and
effectiveness of stimulus programs announced worldwide. We will be against
the tide for at least the next six months. Long-term the historic pattern of
use for steel and related products in emerging economies as well as global
infrastructure will drive strong demand.
"As I noted last quarter, these conditions are a call to execution. We
must execute our working capital plans to exit this downturn stronger than
when we entered. We are reducing costs and will accelerate our cost reduction
programs. There will be opportunities for us as we remain vigilant to our
financial strength. We remain committed to our four major capital expenditure
projects for the year -- the micro mill in Arizona, the new flexible rolling
mill in Poland, our melt shop and caster upgrade in Croatia, and the rollout
of SAP, but always with contingency plans."
In closing, McClean added, "Our second quarter is historically our weakest
encompassing the winter, but now exacerbated by world wide recession.
Customers will be destocking in December to manage year end balance sheets and
awaiting more definitive signs that pricing is at the bottom. Backlogs are
not refilling at the same rate as shipments. Market and inventory downward
adjustments are likely to continue. We estimate that our Americas steel mills
will likely operate at 55% to 65% of capacity. Some bright spots -- highway
work, particularly in Texas, remains strong and there is optimism regarding
the announced infrastructure stimulus. We anticipate second quarter LIFO
diluted earnings per share to be near breakeven."
CMC invites you to listen to a live broadcast of its first quarter 2009
conference call on Wednesday, December 17, at 11:00 a.m. ET. The call will be
hosted by Murray McClean, Chairman, President and CEO, and Bill Larson, Senior
Vice President and CFO, and can be accessed via our website at
http://www.cmc.com or at http://www.streetevents.com. In the event you are
unable to listen to the live broadcast, the call will be archived and
available for replay within two hours of the web cast. Financial and
statistical information presented in the broadcast can be found on CMC's
website under "Investor Relations."
Commercial Metals Company and subsidiaries manufacture, recycle and market
steel and metal products, related materials and services through a network
including steel minimills, steel fabrication and processing plants,
construction-related product warehouses, a copper tube mill, metal recycling
facilities and marketing and distribution offices in the United States and in
strategic international markets.
Forward-Looking Statements
The Outlook section of this news release contains forward-looking
statements regarding the outlook for the Company's financial results including
net earnings, economic conditions, credit availability, product pricing and
demand, production rates, inventory levels, and general market conditions.
These forward-looking statements generally can be identified by phrases such
as the company or its management "expect," "anticipates," "believe," "ought,"
"should," "likely," "appears," "projected," "forecast," "outlook," "will" or
other words or phrases of similar impact. There is inherent risk and
uncertainty in any forward-looking statements. Variances will occur and some
could be materially different from management's current opinion. Developments
that could impact the Company's expectations include the success or failure of
government efforts to stimulate the economy including restoring credit
availability and confidence in a recovery, construction activity, difficulties
or delays in the execution of construction contracts resulting in cost
overruns or contract disputes, metals pricing over which the Company exerts
little influence, interest rate changes, increased capacity and product
availability from competing steel minimills and other steel suppliers
including import quantities and pricing, court decisions, industry
consolidation or changes in production capacity or utilization, the ability to
integrate acquisitions into operations; global factors including political and
military uncertainties, currency fluctuations, energy and supply prices and
decisions by governments impacting the level of steel imports and pace of
overall economic activity, particularly China.
Three months ended
(Short Tons in Thousands) 11/30/08 11/30/07
Domestic Steel Mill Rebar Shipments 236 285
Domestic Steel Mill Structural and Other Shipments 196 309
CMCZ Shipments 295 268
Total Mill Tons Shipped 727 862
Average FOB Mill Domestic Selling Price
(Total Sales) $796 $585
Average Cost Domestic Mill Ferrous Scrap Utilized $336 $246
Domestic Mill Metal Margin $460 $339
Average Domestic Ferrous Scrap Purchase Price $263 $231
Average FOB Mill CMCZ Selling Price (Total Sales) $683 $570
Average Cost CMCZ Ferrous Scrap Utilized $357 $332
CMCZ Mill Metal Margin $326 $238
Average CMCZ Ferrous Scrap Purchase Price $269 $288
Fab Plant Rebar Shipments 289 262
Fab Plant Structural, Post, Joist and Deck
Shipments 138 166
Total Fabrication Tons Shipped 427 428
Average Fab Selling Price (Excluding Stock
& Buyout Sales) $1,274 $1,015
Domestic Scrap Metal Tons Processed and Shipped 563 787
BUSINESS SEGMENTS
(in thousands)
Three months ended
11/30/08 11/30/07
Net Sales:
Americas Recycling $260,450 $425,365
Americas Mills 387,484 402,810
Americas Fabrication & Distribution 916,737 646,863
International Mills 224,071 168,178
International Fabrication and Distribution 930,593 757,392
Corporate, Discontinued Operations and
Eliminations (346,505) (284,604)
Total Net Sales $2,372,830 $2,116,004
Adjusted Operating Profit (Loss):
Americas Recycling $(27,953) $16,877
Americas Mills 118,700 69,213
Americas Fabrication & Distribution 66,628 30,436
International Mills (16,735) (577)
International Fabrication and Distribution 14,885 26,559
Corporate and Eliminations (30,955) (22,711)
COMMERCIAL METALS COMPANY
Condensed Consolidated Statements of Earnings (Unaudited)
Three months ended
(in thousands except share data) 11/30/08 11/30/07
Net sales $2,372,830 $2,116,004
Costs and expenses:
Cost of goods sold 2,106,146 1,855,380
Selling, general and administrative expenses 153,510 149,999
Interest expense 26,083 12,425
2,285,739 2,017,804
Earnings from continuing operations before
income taxes and minority interests 87,091 98,200
Income taxes 30,766 33,357
Earnings from continuing operations before
minority interests 56,325 64,843
Minority interests (benefit) 46 (128)
Net earnings from continuing operations 56,279 64,971
Earnings from discontinued operations before taxes 9,113 6,450
Income taxes 3,386 2,257
Net earnings from discontinued operations 5,727 4,193
Net earnings $62,006 $69,164
Basic earnings per share
Earnings from continuing operations $0.50 $0.55
Earnings from discontinued operations 0.05 0.04
Net earnings 0.55 0.59
Diluted earnings per share
Earnings from continuing operations $0.49 $0.54
Earnings from discontinued operations 0.05 0.03
Net earnings 0.54 0.57
Cash dividends per share $ 0.12 $ 0.09
Average basic shares outstanding 113,004,524 117,568,366
Average diluted shares outstanding 114,473,163 120,372,272
COMMERCIAL METALS COMPANY
Condensed Consolidated Balance Sheets (Unaudited)
November 30, August 31,
(in thousands) 2008 2008
Assets:
Current assets:
Cash and cash equivalents $91,479 $219,026
Accounts receivable, net 1,111,946 1,369,453
Inventories 1,226,416 1,400,332
Other 249,061 228,632
Total current assets 2,678,902 3,217,443
Net property, plant and equipment 1,139,725 1,154,322
Goodwill 73,068 84,837
Other assets 271,156 289,769
$4,162,851 $4,746,371
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable - trade $541,738 $838,777
Accounts payable - documentary letters
of credit 189,558 192,492
Accrued expenses and other payables 409,626 563,424
Income taxes payable and deferred
income taxes - 156
Notes payable 25,853 31,305
Current maturities of long-term debt 109,546 106,327
Total current liabilities 1,276,321 1,732,481
Deferred income taxes 66,019 50,160
Other long-term liabilities 100,940 124,171
Long-term debt 1,169,393 1,197,533
Minority interests 2,967 3,643
Stockholders' equity 1,547,211 1,638,383
$4,162,851 $4,746,371
COMMERCIAL METALS COMPANY
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended
(in thousands) 11/30/08 11/30/07
Cash Flows From (Used By) Operating
Activities:
Net earnings $62,006 $69,164
Adjustments to reconcile net earnings to cash
from (used by) operating activities:
Depreciation and amortization 41,308 31,522
Minority interests 46 (128)
Provision for losses on receivables 8,784 605
Share-based compensation 4,109 4,206
Net gain on sale of assets and other (214) (189)
Changes in Operating Assets and Liabilities,
Net of Acquisitions:
(Increase) decrease in accounts receivable 172,402 (29,337)
Decrease in accounts receivable sold 4,397 38,715
(Increase) decrease in inventories 80,621 (31,923)
Decrease in other assets (2,081) (1,324)
Decrease in accounts payable, accrued
expenses, other payables and income taxes (356,366) (111,415)
Increase (decrease) in deferred income taxes 9,087 (25,368)
Increase (decrease) in other long-term
liabilities (20,107) 13,003
Net Cash Flows From (Used By) Operating Activities 3,992 (42,469)
Cash Flows From (Used By) Investing Activities:
Capital expenditures (86,654) (69,189)
Proceeds from the sale of property, plant
and equipment and other 798 299
Acquisitions of other businesses, net of
cash acquired (906) (18,757)
Net Cash Used by Investing Activities (86,762) (87,647)
Cash Flows From (Used By) Financing Activities:
Decrease in documentary letters of credit (2,934) (7,060)
Short-term borrowings, net change (4,021) 34,359
Payments on long-term debt (292) (1,473)
Stock issued under incentive and
purchase plans 65 337
Treasury stock acquired (18,514) (51,191)
Dividends paid (13,653) (10,671)
Tax benefits from stock plans 518 881
Net Cash Used By Financing Activities (38,831) (34,818)
Effect of Exchange Rate Changes on Cash and
Cash Equivalents (5,946) 1,465
Decrease in Cash and Cash Equivalents (127,547) (163,469)
Cash and Cash Equivalents at Beginning of Year 219,026 419,275
Cash and Cash Equivalents at End of Period $91,479 $255,806
COMMERCIAL METALS COMPANY
Non-GAAP Financial Measures (Unaudited)
(dollars in thousands)
This press release uses financial statement measures not derived in
accordance with generally accepted accounting principles (GAAP).
Reconciliations to the most comparable GAAP measures are provided below.
EBITDA:
Earnings before interest expense, income taxes, depreciation and
amortization.
EBITDA is a non-GAAP liquidity measure. It excludes Commercial Metals
Company's largest recurring non-cash charge, depreciation and amortization. As
a measure of cash flow before interest expense, it is one guideline used to
assess the Company's ability to pay its current debt obligations as they
mature and a tool to calculate possible future levels of leverage capacity.
EBITDA to interest is a covenant test in certain of the Company's note
agreements.
For the quarter ended November 30, 2008:
Net earnings $62,006
Interest expense 26,448
Income taxes 34,152
Depreciation and amortization 41,308
EBITDA $163,914
EBITDA to interest coverage for the quarter ended November 30, 2008:
$163,914 / 26,448 = 6.20
Total Capitalization:
Total capitalization is the sum of long-term debt, deferred income taxes,
and stockholders' equity. The ratio of debt to total capitalization is a
measure of current debt leverage. The following reconciles total
capitalization at November 30, 2008 to the nearest GAAP measure, stockholders'
equity:
Stockholders' equity $1,547,211
Long-term debt 1,169,393
Deferred income taxes 66,019
Total capitalization $2,782,623
Other Financial Information
Long-term debt to cap ratio as of November 30, 2008:
Debt divided by capitalization
$1,169,393 / 2,782,623 = 42.0%
Total debt to cap plus short-term debt ratio as of November 30, 2008:
$1,304,792 / (2,782,623 + 109,546 + 25,853) = 44.7%
Current ratio as of November 30, 2008:
Current assets divided by current liabilities
$2,678,902/ 1,276,321 = 2.1
