Commercial Metals Company Reports Income of $0.7 Million or $0.01 per Diluted Share for First Quarter

Dec 21, 2010, 08:08 ET from Commercial Metals Company

IRVING, Texas, Dec. 21, 2010 /PRNewswire-FirstCall/ -- Commercial Metals Company (NYSE: CMC) today reported net income of $0.7 million or $0.01 per diluted share on net sales of $1.8 billion for the quarter ended November 30, 2010. This compares with a net loss of $31.2 million or $0.28 per share on net sales of $1.4 billion for the first quarter of last year. The period's results included pre-tax LIFO expense of $5.7 million or after tax $0.03 per share. This compares with pre-tax LIFO income of $17.3 million or after tax $0.10 per share in last year's first quarter. At quarter end, the LIFO reserve totaled $236 million.

The quarter has a disproportionately high effective tax rate. Losses in Croatia are not tax benefitted as the Company may not be able to use them in the allowed carryforward period. The tax rate on all operations, excluding Croatia, is only 27%, but is applied against pre-tax income after adding back the Croatian loss, resulting in the higher rate.

General Conditions

Murray R. McClean, Chairman, President and CEO, said, "Most of our business units performed better than our fourth quarter of fiscal year 2010 and considerably better than the first quarter of fiscal year 2010, reflecting some improvement in market conditions as well as our continued focus on increasing efficiencies and reducing costs across our operations.  The exceptions were Americas Fabrication and CMC Sisak (Croatia), with our Croatian operations, in particular, performing below expectations.  We previously predicted that ferrous scrap prices would rise by quarter end, but the magnitude of the increase was greater than we had anticipated.  The outcome of the mid-term elections in the U.S. appears to have improved demand as there is greater clarity on the economic environment.  Internationally, we are witnessing a similar scenario to calendar year 2009 where ferrous scrap prices rose sharply in November and December followed by steel prices.  Inventories across the supply chain, whether in the U.S. or in international markets, are relatively low; a seasonal demand pickup in early 2011 may lead to higher ferrous scrap and steel prices."

Americas Recycling

The Americas Recycling segment had an adjusted operating profit of $8.2 million (including pre-tax LIFO expense of $2.2 million) compared to the prior year's first quarter $1.2 million loss, with negligible LIFO effect. The increase in profitability was volume related as purchase prices moved in line with sales pricing. Shredded ferrous scrap prices rose, fell, and recovered during the quarter, continuing the general upward trend in pricing that began in December 2009 and has kept benchmark pricing levels above $300 a ton for every month of calendar 2010. Export demand has been fairly constant with Turkish demand supplanting China; domestic mills appear to have underestimated steel demand, requiring more purchases late in the quarter as manufacturing activity in the U.S. stabilized. Nonferrous pricing (copper and aluminum) had steady increases throughout the quarter with a small pullback at quarter end. Chinese copper demand remains strong, but the segment also shipped significant quantities to Europe. The average ferrous scrap sales price for the first quarter was $284 per short ton, a 38% increase over the prior year first quarter. Average nonferrous scrap pricing was $2,944 per short ton, up 25% from the first quarter of last year. Shipments of ferrous scrap totaled 495 thousand tons, an increase of 24% from the first quarter of last year. Nonferrous scrap shipments totaled 63 thousand tons, 19% higher than last year. The segment exported 8% of its ferrous scrap tonnage and 37% of its nonferrous scrap tonnage during the quarter.

Americas Mills

The mills ran at 72% of rolling capacity during the quarter, up from 63% in the fourth quarter of last fiscal year. After a summer pause, from an earlier restocking, shipments from the backlog of highway work and other infrastructure projects increased. Also, while there is some demand in education, healthcare, and manufacturing, commercial work remains weak.  The announcement of pending finished goods price increases based on rising ferrous scrap prices pulled demand forward into this quarter. Metal margins rose substantially from last year's first quarter.  In the prior year, sales prices fell faster than scrap prices, and there was an unfavorable product mix of billets, neither of which repeated this year.

The steel mills had an adjusted operating profit of $29.1 million compared to an adjusted operating loss of $3.4 million in the same quarter last year as the segment absorbed $11.3 million in start-up costs at the micromill in Arizona. The quarter had pre-tax LIFO expense of $10.5 million compared to a minimal effect in last year's quarter. The metal margin for the quarter was $293 per ton, ahead of the prior year's metal margin of $241 per ton. The price of ferrous scrap consumed at the mills during the quarter increased $46 per ton compared to last year. Each of the mills was comparable or ahead of last year in tonnages melted, rolled, and shipped. Sales volumes were 572 thousand tons of which 90 thousand tons were billets, compared with 498 thousand tons in the first quarter of last year, including 117 thousand tons of billets. Comparing first quarter to first quarter between years, tonnage melted was up 23% to 589 thousand tons, and tonnage rolled increased 43% to 506 thousand tons.

The copper tube mill reported adjusted operating profit of $5.0 million (pre-tax LIFO expense of $1.6 million) compared to $3.4 million adjusted operating profit (pre-tax LIFO expense of $3.0 million) in last year's first quarter.

Americas Fabrication

The segment's market conditions remained unfavorable for downstream operations. Commercial construction was weak, steel costs have risen, and recently announced steel price increases will drive margins down further in the short run. The Western region of the U.S. remains the most problematic. Fab backlogs are building at higher prices, allowing the Company's integrated supply chain in recycling and mill operations to benefit. During the quarter, two non-core businesses were sold; the heavy forms rental business and the joist business at a $1.9 million net gain. The segment reported an adjusted operating loss of $22.0 million compared to last year's first quarter adjusted operating loss of $8.9 million. The current quarter had pre-tax LIFO income of $6.2 million compared to last year's pre-tax LIFO income of $11.3 million. The composite average fab selling price (excluding stock and buyouts) was $775 per ton, 2% lower than last year's first quarter price.

International Mills

Safety remains a high priority at CMC, and this is nowhere more evident than at CMC Zawiercie (CMCZ). Last quarter the Polish mill, for the second time, recorded over one million man hours without a recordable injury. Shortly after the end of the first quarter, the steelworkers in Poland extended this to two million man hours. In addition to its strong safety record, the mill also has maintained monthly operating profits since April. The Polish economy achieved calendar third quarter GDP growth of above 4% with EU funding still available for highway and public works.  Infrastructure and stadium construction for the 2012 Euro Cup remains strong. In Croatia, CMC Sisak (CMCS) commissioned its ladle metallurgical station during the quarter, the last piece of its melt shop upgrade and, by quarter's end, CMCS had begun its sequence casting trials. Both mills undertook major maintenance projects during the quarter, CMCZ in its melt shop and CMCS in the medium section seamless mill.

CMCZ had adjusted operating income of $6.4 million compared to an $11.6 million loss in the first quarter of last year. Shipments totaled 356 thousand tons (50 thousand tons of billets) comparable to the prior year quarter, but the prior year included 103 thousand tons of billet sales. Tons melted were 361 thousand tons compared to 399 thousand tons, and tons rolled were 307 thousand tons compared to 266 thousand tons. Average selling prices increased 35% to PLN 1,650 compared to PLN 1,220 in the prior year's first quarter, a period of lower volumes and tighter scrap pricing. The cost of scrap entering production increased 27%. The average metal margin per ton increased to PLN 656 from PLN 438 in last year's first quarter. Backlogs increased 50 thousand tons during the quarter.

Though anticipating an adjusted operating loss this quarter, CMC Sisak's result of a $14.1 million adjusted operating loss was, nonetheless, unacceptable and decisive action to address performance has been taken. Management changes have been made, and technical personnel from both U.S. and Polish mills are on extended assignments at CMCS to improve business processes, lower the cost structure, and better utilize new capital investments.  During the quarter, the mill melted 38 thousand tons, rolled 19 thousand tons, and shipped 13 thousand tons.

International Marketing and Distribution

The International Marketing and Distribution segment was profitable each quarter of last year and achieved first quarter adjusted operating profits of $24.2 million, a 20% increase over the results of the first quarter last year. The current quarter benefited from approximately $7 million in recoveries on contract claims in the U.S. steel import business. Each major geographic operation was profitable with the Asian and Australian operations, in particular, performing well.  Moreover, the raw materials division, including downstream processing, had solid results. The U.S.-based steel import operation is on LIFO; for the quarter it had pre-tax LIFO income of $2.1 million compared to LIFO income of $4.7 million in the first quarter of last year.

Financial Condition

McClean said, "We remain committed to a strong balance sheet and a conservative outlook for the medium term. At November 30, 2010, we had cash and short-term investments of $383 million. More than 80% of our accounts receivable are backed by letters of credit, are credit insured or we hold lien or bond rights; we have an allowance for doubtful accounts of $29 million. The majority of our domestic inventories are valued on LIFO with a reserve of $236 million. The current ratio was 2.1. We had no drawings on our domestic accounts receivable securitization program which we extended to January 31, 2011. Our $400 million revolver had but $60 million of commercial paper outstanding. We remain investment grade rated.

"In accordance with our February 26, 2010 amendments to our $400 million revolver and $100 million accounts receivable securitization agreement, we are required to maintain $300 million in liquidity as defined and an EBITDA to interest coverage ratio of 2.5. We met both covenants. We anticipate meeting the EBITDA to interest coverage ratio on a twelve month rolling basis at February 28, 2011, at which time the $300 million liquidity requirement will no longer be effective."

Outlook

In closing, McClean added, "Due to seasonal factors, our second quarter is historically our weakest. Typically ferrous scrap prices would be relatively stable until the end of the quarter when spring construction buildup would begin. However, the trend appears to be for continuing higher prices early in the quarter, though a pullback by spring could be expected. Rebar price increases are already in effect, and increasing ferrous scrap pricing likely will continue to apply upward pressure. Fabrication backlogs normally decline in this period; however, they are likely to trend upwards at higher prices which overall should be positive. Nonferrous metals, particularly copper, appear to be supply constrained and prices should remain historically high. Volumes are always weather dependent; the largest swing factor is likely to be Poland. Absent LIFO considerations, we would anticipate a small loss for the second quarter. We remain focused on a number of operational and strategic initiatives to both address near-term challenges and position us for improved performance when the markets further recover."

CMC invites you to listen to a live broadcast of its first quarter 2011 conference call on Tuesday, December 21, at 11:00 a.m. ET.  The call will be hosted by Murray McClean, Chairman, President and CEO, Joe Alvarado, Executive Vice President and COO, and Bill Larson, Senior Vice President and CFO, and can be accessed via our website at www.cmc.com or at 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

This news release contains forward-looking statements regarding the outlook for the Company's financial results including net earnings (loss), economic conditions, credit availability, product pricing and demand, currency valuation, production rates, interest rates, inventory levels, acquisitions, construction and operation of new facilities and general market conditions. These forward-looking statements generally can be identified by phrases such as we, the company or its management "expects," "anticipates," "believes," "estimates," "intends," "plans to," "ought," "could," "will," "should," "likely," "appears," "projects," "forecasts," "outlook," or other similar words or phrases.  There are inherent risks and uncertainties in any forward-looking statements. Variances will occur and some could be materially different from our current opinion.

Developments that could impact the Company's expectations include the following: absence of global economic recovery or possible recession relapse; solvency of financial institutions and their ability or willingness to lend; success or failure of governmental efforts to stimulate the economy, including restoring credit availability and confidence in a recovery; continued sovereign debt problems within the euro zone and other foreign zones; customer non-compliance with contracts; construction activity or lack thereof; decisions by governments affecting the level of steel imports, including tariffs and duties; claims litigation and settlements; difficulties or delays in the execution of construction contracts resulting in cost overruns or contract disputes; unsuccessful or delayed implementation of new technology; metals pricing over which the Company exerts little influence; increased capacity and product availability from competing steel minimills and other steel suppliers, including import quantities and pricing; execution of cost minimization strategies; ability to retain key executives; court decisions and regulatory rulings; industry consolidation or changes in production capacity or utilization; global factors, including political and military uncertainties; currency fluctuations; interest rate changes; availability and pricing of raw material including scrap metal and energy, insurance and supply prices; passage of new, or interpretation of existing, environmental laws and regulations; severe weather, especially in Poland; and the pace of overall economic activity, particularly in China.

Three months ended

(Short Tons in Thousands)

11/30/10

11/30/09

Domestic Steel Mill Rebar Shipments

302

227

Domestic Steel Mill Structural and Other Shipments

270

271

CMCZ Shipments

356

355

Total Mill Tons Shipped

928

853

Average FOB Mill Domestic Selling Price (Total Sales)

$605

$507

Average Cost Domestic Mill Ferrous Scrap Utilized

$312

$266

Domestic Mill Metal Margin

$293

$241

Average Domestic Ferrous Scrap Purchase Price

$280

$213

Average FOB Mill CMCZ Selling Price (Total Sales)

$565

$431

Average Cost CMCZ Ferrous Scrap Utilized

$340

$276

CMCZ Mill Metal Margin

$225

$155

Average CMCZ Ferrous Scrap Purchase Price

$278

$223

Fab Plant Rebar Shipments

213

196

Fab Plant Structural and Post Shipments

34

32

Total Fabrication Tons Shipped

247

228

Average Fab Selling Price (Excluding Stock & Buyout Sales)

$775

$792

Domestic Recycling Tons Processed and Shipped

558

453

Note: FOB domestic selling prices revised to eliminate net freight costs.

BUSINESS SEGMENTS

(in thousands)

Three months ended

11/30/10

11/30/09

Net Sales:

 Americas Recycling

$   375,795

$   265,528

 Americas Mills

435,397

307,535

 Americas Fabrication

287,753

262,473

 International Mills

232,796

183,269

 International Marketing and Distribution

645,906

573,086

 Corporate and Eliminations

(195,167)

(189,633)

Total Net Sales

$1,782,480

$1,402,258

Adjusted Operating Profit (Loss):

 Americas Recycling

$       8,192

$      (1,210)

 Americas Mills

34,143

(19)

 Americas Fabrication

(22,008)

(8,916)

 International Mills

(7,666)

(19,092)

 International Marketing and Distribution

24,238

20,138

 Corporate and Eliminations

(10,300)

(15,538)

COMMERCIAL METALS COMPANY

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands except share data)

Three months ended

11/30/10

11/30/09

Net Sales

$  1,782,480

$  1,402,258

Costs and Expenses:

Cost of Goods Sold

1,633,492

1,294,495

Selling, General and Administrative Expenses

123,600

133,185

Interest Expense

18,325

19,451

1,775,417

1,447,131

Earnings (Loss) from Continuing Operations Before Income Taxes

7,063

(44,873)

Income Taxes (Benefit)

6,730

(16,195)

Earnings (Loss) from Continuing Operations

333

(28,678)

Earnings (Loss) from Discontinued Operations before Income Taxes

668

(4,158)

Income Taxes (Benefit)

259

(1,613)

Net Earnings (Loss) from Discontinued Operations

$            409

$        (2,545)

Net Earnings (Loss)

742

(31,223)

Less Net Earnings Attributable to Noncontrolling Interests

91

6

Net Earnings (Loss) Attributable to CMC

$            651

$      (31,229)

Basic Earnings (Loss) per Share Attributable to CMC

   Earnings (Loss) from Continuing Operations

$           0.01

$          (0.26)

   Loss from Discontinued Operations

(0.02)

   Net Earnings (Loss)

$           0.01

$          (0.28)

Diluted Earnings (Loss) per Share Attributable to CMC

   Earnings (Loss) from Continuing Operations

$           0.01

$          (0.26)

   Loss from Discontinued Operations

(0.02)

   Net Earnings (Loss)

$           0.01

$          (0.28)

Cash Dividends per Share

$           0.12

$           0.12

Average Basic Shares Outstanding

114,319,017

112,495,297

Average Diluted Shares Outstanding

115,223,693

112,495,297

COMMERCIAL METALS COMPANY

Condensed Consolidated Balance Sheets (Unaudited)

November 30,

August 31,

(in thousands)

2010

2010

Assets:

Current Assets:

 Cash and cash equivalents

$          382,800

$     399,313

 Accounts receivable, net

818,985

824,339

 Inventories

695,950

674,680

 Other

275,121

276,874

Total Current Assets

2,172,856

2,175,206

Net Property, Plant and Equipment

1,198,233

1,232,268

Goodwill

71,859

71,580

Other Assets

186,666

227,099

$       3,629,614

$  3,706,153

Liabilities and Stockholders' Equity:

Current Liabilities:

 Accounts payable – trade

$          438,893

$     504,388

 Accounts payable – documentary letters of credit

118,019

226,633

 Accrued expenses and other payables

350,685

324,897

 Commercial paper

60,000

10,000

 Notes payable

35,787

6,453

 Current maturities of long-term debt

31,131

30,588

Total Current Liabilities

1,034,515

1,102,959

Deferred Income Taxes

43,624

43,668

Other Long-Term Liabilities

110,249

108,870

Long-Term Debt

1,180,901

1,197,282

Stockholders' Equity Attributable to CMC

1,257,596

1,250,736

Stockholders' Equity Attributable to Noncontrolling Interests

2,729

2,638

$       3,629,614

$  3,706,153

COMMERCIAL METALS COMPANY

Condensed Consolidated Statements of Cash Flows (Unaudited)

Three months ended

(in thousands)

11/30/10

11/30/09

Cash Flows From (Used By) Operating Activities:

Net earnings (loss)

$       742

$ (31,223)

Adjustments to reconcile net earnings (loss) to cash from (used by) operating activities:

   Depreciation and amortization

40,643

43,695

   Recoveries on receivables

(522)

(2,526)

   Share-based compensation

2,135

2,422

   Deferred income taxes

72

(8,933)

   Tax benefits from stock plans

(71)

(705)

   Gain on sale of assets and other

(1,527)

   Writedown of inventory

3,815

12,931

Changes in Operating Assets and Liabilities, Net of Acquisitions:

   Decrease (increase) in accounts receivable

(16,233)

58,328

   Accounts receivable sold (repurchased), net

21,994

(10,456)

   Decrease (increase) in inventories

(22,428)

15,010

   Decrease (increase) in other assets

291

(11,450)

   Decrease in accounts payable, accrued expenses, other payables and income taxes

(35,710)

(37,242)

   Increase in other long-term liabilities

1,208

2,040

Net Cash Flows From (Used By) Operating Activities

(5,591)

31,891

Cash Flows From (Used By) Investing Activities:

 Capital expenditures

(11,904)

(46,514)

 Proceeds from the sale of property, plant and equipment and other

51,518

183

 Acquisitions, net of cash acquired

(2,448)

 Increase in deposit for letters of credit

(1,523)

Net Cash Flows From (Used By) Investing Activities

38,091

(48,779)

Cash Flows From (Used By) Financing Activities:

 Decrease in documentary letters of credit

(108,614)

(37,850)

 Short-term borrowings, net change

79,127

1,491

 Repayments on long-term debt

(7,390)

(7,567)

 Proceeds from issuance of long-term debt

45

694

 Stock issued under incentive and purchase plans

389

960

 Cash dividends

(13,722)

(13,515)

 Tax benefits from stock plans

71

705

Net Cash Flows Used By Financing Activities

(50,094)

(55,082)

Effect of Exchange Rate Changes on Cash

1,081

397

Decrease in Cash and Cash Equivalents

(16,513)

(71,573)

Cash and Cash Equivalents at Beginning of Year

399,313

405,603

Cash and Cash Equivalents at End of Period

$382,800

$334,030

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.

Adjusted EBITDA:

Earnings before interest expense, income taxes, depreciation and amortization and impairment charges.

Adjusted EBITDA is a non-GAAP liquidity measure. It excludes Commercial Metals Company's largest recurring non-cash charge, depreciation and amortization, including impairment charges. 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. Adjusted EBITDA to interest is a covenant test in certain of the Company's note agreements.

For the quarter ended November 30, 2010:

Net earnings attributable to CMC

$      651

Interest expense

18,325

Income taxes

6,989

Depreciation, amortization and impairment charges

40,643

Adjusted EBITDA

$ 66,608

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, 2010 to the nearest GAAP measure, stockholders' equity:

Stockholders' equity attributable to CMC

$1,257,596

Long-term debt

1,180,901

Deferred income taxes

43,624

Total capitalization

$2,482,121

Other Financial Information

Long-term debt to cap ratio as of November 30, 2010:

Debt divided by capitalization

$1,180,901 / 2,482,121 = 47.6%

Total debt to cap plus short-term debt plus notes payable ratio as of November 30, 2010:

($1,180,901 + 60,000 + 35,787 + 31,131) / ($2,482,121 + 60,000 + 35,787 + 31,131) = 50.1%

Current ratio as of November 30, 2010:

Current assets divided by current liabilities

$2,172,856 / 1,034,515 = 2.1

SOURCE Commercial Metals Company



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