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Commercial Metals Company Reports A Fourth Consecutive Profitable Quarter And Full Year Profits Of $207.5 Million

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IRVING, Texas, Oct. 24, 2012 /PRNewswire/ -- Commercial Metals Company (NYSE: CMC) today reported for the fourth quarter ended August 31, 2012 net earnings of $30.2 million or $0.26 per diluted share on net sales of $1.9 billion, a significant improvement compared to a net loss of $120.3 million or $1.04 per share in the prior year fourth quarter. Net earnings for the year ended August 31, 2012 represent the fifth-best full year performance in CMC's nearly 100 year history at $207.5 million or $1.78 per diluted share on sales of $7.8 billion. The fiscal year 2012 performance compares to a net loss of $129.6 million or $1.12 per diluted share on sales of $7.9 billion for the same period last year.

Joe Alvarado, President and Chief Executive Officer, commented, "We are pleased to report a fourth consecutive quarter of profitability and the fifth-best year in the history of our company, despite a backdrop of weak conditions in most major markets globally.  Results have improved dramatically over last year's fourth quarter. Consistent with the third quarter of this year, each operating segment posted quarterly adjusted operating profit.  Our cash flow from operations substantially improved over the prior year."

The board of directors of CMC declared a quarterly dividend of $0.12 on October 23, 2012 for shareholders of record on November 7, 2012.  The dividend will be paid on November 21, 2012.

Fourth Quarter 2012 Review
Net earnings for this year's fourth quarter from continuing operations were $17.0 million or $0.15 per diluted share.  Adjusted EBITDA was $109.2 million for this year's fourth quarter and cash flow from operations was $61.2 million.  After-tax items included in continuing operations were:

  • LIFO income of $18.3 million ($0.16 per diluted share) as compared to $6.3 million ($0.05 per share) of after-tax LIFO expense in the fourth quarter of 2011;
  • loss of $2.5 million ($0.02 per diluted share) related to the sale of a rebar fabrication shop in Rosslau, Germany;
  • expenses of $2.5 million ($0.02 per diluted share) related to the full valuation of certain state tax losses; and
  • expenses of $2.4 million ($0.02 per diluted share) related to our proxy contest and hostile tender offer.

Earnings from discontinued operations were $13.2 million or $0.11 per diluted share, which primarily consists of the share sale of CMC's Croatian subsidiary for a pre-tax gain of $13.8 million (including a $7.5 million gain in foreign currency translation).  Certain assets excluded from the share sale were sold in June and the remaining assets were sold in September 2012.  Total net cash proceeds for these transactions will be approximately $41 million.

Alvarado added, "A year ago we committed to exiting unprofitable businesses and as part of executing that plan, as of September 21, 2012 we have completed the sale of our Croatian pipe subsidiary.  We expect to receive a net of $41 million in cash as a result of these transactions."

Americas Recycling recorded an adjusted operating profit of $8.3 million as compared to $10.8 million from prior year's fourth quarter.  Due to oversupply and reduced export demand, ferrous scrap prices rapidly declined in the first two months of the fourth quarter of 2012, before partially recovering in August.  Lower demand negatively affected both the segment's margins and volumes.  On the nonferrous side, the segment's volume and pricing declined compared to a year ago.

Americas Mills recorded an adjusted operating profit of $62.3 million, $16.7 million more than last year's fourth quarter.  The segment's volumes were essentially flat quarter over quarter while margins were better.  Due to lower input prices, LIFO for this segment improved $27.4 million to income of $21.6 million during this year's fourth quarter.

The Americas Fabrication segment recorded an adjusted operating profit of $1.5 million in this year's fourth quarter, marking a significant improvement of $44.3 million over last year's fourth quarter adjusted operating loss of $42.8 million.  The segment continued to benefit from stable material pricing and improved margins in the backlog.  Compared to a year ago, both shipments and bid activity improved for this segment.

The International Mill segment had an adjusted operating profit of $5.4 million for this year's fourth quarter compared to an adjusted operating profit of $14.6 million during last year's fourth quarter.  Included in this year's fourth quarter is a pre-tax loss of $3.8 million related to the sale of a rebar fabrication shop in Rosslau, Germany.  During this year's fourth quarter, the segment shipped substantial billet orders, mostly to Asian markets.  Market conditions in Europe continue to be soft, putting pressure on margins, and significant uncertainty remains. 

Our International Marketing and Distribution segment recorded an adjusted operating profit of $1.5 million for this year's fourth quarter compared to an adjusted operating profit of $22.7 million for last year's fourth quarter.  Within this segment, the reduced profitability is primarily due to reduced demand in some of our key products marketed by our raw materials division.  Uncertainty around the outcome of economic stimulus in China is weighing on this division's results.  Furthermore, our European trading division experienced lower volumes and margins as a result of the continued Euro zone market conditions.

Full Year 2012 Review
Continuing operations for fiscal year 2012 were net earnings of $209.0 million or $1.79 per diluted share. For the fiscal year ended August 31, 2012, cash flow from operations was $196.0 million and adjusted EBITDA was $364.2 million, which are $168.2 million and $127.0 million higher, respectively, than the prior year.  Cash and short-term investments totaled $262.4 million as of August 31, 2012. After-tax items included in continuing operations were:

  • LIFO income of $29.6 million ($0.25 per diluted share) as compared to $50.0 million ($0.43 per diluted share) of expense in fiscal 2011;
  • a tax benefit of $102.1 million ($0.87 per diluted share) related to ordinary worthless stock and bad debt deductions from the prior investment in CMC's Croatian subsidiary;
  • a tax benefit of $11.5 million ($0.10 per diluted share) for research and experimentation expenditures; and 
  • expenses of $9.7 million ($0.08 per diluted share) related to our proxy contest and hostile tender offer.

Discontinued operations reflected a net loss of $1.5 million for the full year, attributable to the wind down of the Croatian pipe mill, which was offset by a $13.8 million pre-tax gain on sale of the Croatian subsidiary. 

Outlook
Alvarado concluded, "In general we see economic recovery lacking meaningful momentum.  Scrap prices continue to move down as we begin our fiscal year 2013 but we do expect a reversal of this trend during the winter months when supply tightens.  We believe that, despite weakness in the scrap markets, our Recycling business has done a good job adjusting to the market volatility and maintaining profitability. Domestically, there is clear indication that residential construction is improving, which is a leading indicator of increased non-residential activity.  Our International Mill segment continues to face difficult markets due to economic uncertainty in the Euro zone.  Lastly, our International Marketing and Distribution segment faces substantial headwinds due to reduced demand in our raw materials division as well as the impact of China's unclear growth outlook.  As always, we remain committed to improving our cost structure and cash flows."

Conference Call
CMC invites you to listen to a live broadcast of its fourth quarter 2012 conference call today, Wednesday, October 24, 2012, at 11:00 a.m. ETJoe Alvarado, President and CEO, and Barbara Smith, Senior Vice President and CFO, will host the call.  The call is accessible via our website at www.cmc.com.  In the event you are unable to listen to the live broadcast, the call will be archived and available for replay on the webcast on the next business day.  Financial and statistical information presented in the broadcast are located on CMC's website under "Investors".

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 Company's expectations relating to economic conditions, product pricing and demand, scrap prices, inventory levels, instability within the Euro zone and general market conditions.  There are inherent risks and uncertainties in any forward-looking statements. Variances will occur and some could be materially different from our current expectations.  Except as required by law, the Company undertakes no obligation to update, amend or clarify any forward-looking statements to reflect events, new information or otherwise.

Developments that could impact the Company's expectations include the following: absence of global economic recovery or possible recession relapse; construction activity or lack thereof; decisions by governments affecting the level of steel imports, including tariffs and duties; 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; increased capacity and product availability from competing steel minimills and other steel suppliers, including import quantities and pricing; execution of cost reduction strategies;  industry consolidation or changes in production capacity or utilization;  currency fluctuations;  availability and pricing of raw materials, including scrap metal, energy, insurance and supply prices; passage of new, or interpretation of existing, environmental laws and regulations;  and the pace of overall economic activity, particularly in China.

COMMERCIAL METALS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


Three Months Ended August 31,


Year Ended August 31,

(in thousands, except share data)

2012


2011


2012


2011

Net sales

$

1,878,147



$

2,243,920



$

7,828,440



$

7,863,345


Costs and expenses:








Cost of goods sold

1,698,168



2,061,632



7,108,938



7,213,674


Selling, general and administrative expenses

118,223



136,834



486,606



516,778


Impairment of assets

528



24,466



607



24,466


Interest expense

17,551



16,291



69,496



69,821



1,834,470



2,239,223



7,665,647



7,824,739


Earnings from continuing operations before taxes

43,677



4,697



162,793



38,606


Income taxes (benefit)

26,634



10,640



(46,190)



19,328


Earnings (loss) from continuing operations

17,043



(5,943)



208,983



19,278










Earnings (loss) from discontinued operations before taxes

12,868



(116,963)



(9,912)



(151,670)


Tax benefit

(307)



(2,685)



(8,419)



(2,988)


Earnings (loss) from discontinued operations

13,175



(114,278)



(1,493)



(148,682)










Net earnings (loss)

30,218



(120,221)



207,490



(129,404)


Less net earnings attributable to noncontrolling interests

3



50



6



213


Net earnings (loss) attributable to CMC

$

30,215



$

(120,271)



$

207,484



$

(129,617)










Basic earnings (loss) per share attributable to CMC:








Earnings (loss) from continuing operations

$

0.15



$

(0.05)



$

1.80



$

0.16


Earnings (loss) from discontinued operations

0.11



(0.99)



(0.01)



(1.29)


Net earnings (loss)

$

0.26



$

(1.04)



$

1.79



$

(1.13)










Diluted earnings (loss) per share attributable to CMC:








Earnings (loss) from continuing operations

$

0.15



$

(0.05)



$

1.79



$

0.16


Earnings (loss) from discontinued operations

0.11



(0.99)



(0.01)



(1.28)


Net earnings (loss)

$

0.26



$

(1.04)



$

1.78



$

(1.12)










Cash dividends per share

$

0.12



$

0.12



$

0.48



$

0.48


Average basic shares outstanding

116,267,566



115,523,088



115,861,986



114,995,616


Average diluted shares outstanding

116,904,863



115,523,088



116,783,160



116,111,123



 

 

COMMERCIAL METALS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands)

August 31,
2012


August 31,
2011

Assets




Current assets:




Cash and cash equivalents

$

262,422



$

222,390


Accounts receivable, net

958,364



956,852


Inventories, net

807,923



908,338


Other

211,122



238,673


Total current assets

2,239,831



2,326,253


Net property, plant and equipment

994,304



1,112,015


Goodwill

76,897



77,638


Other assets

130,214



167,225


Total assets

$

3,441,246



$

3,683,131


Liabilities and stockholders' equity




Current liabilities:




Accounts payable-trade

$

433,132



$

585,289


Accounts payable-documentary letters of credit

95,870



170,683


Accrued expenses and other payables

343,337



377,774


Notes payable

24,543



6,200


Current maturities of long-term debt

4,252



58,908


Total current liabilities

901,134



1,198,854


Deferred income taxes

20,271



49,572


Other long-term liabilities

116,261



106,560


Long-term debt

1,157,073



1,167,497


Stockholders' equity attributable to CMC

1,246,368



1,160,425


Stockholders' equity attributable to noncontrolling interests

139



223


Total equity

1,246,507



1,160,648


Total liabilities and stockholders' equity

$

3,441,246



$

3,683,131



 

 

COMMERCIAL METALS COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


Year Ended August 31,

(in thousands)

2012


2011

Cash flows from (used by) operating activities:




Net earnings (loss)

$

207,490



$

(129,404)


Adjustments to reconcile net earnings (loss) to cash flows

from (used by) operating activities:




Depreciation and amortization

137,310



159,576


Provision for losses (recoveries) on receivables, net

(2,463)



306


Share-based compensation

13,125



12,893


Amortization of interest rate swaps termination gain

(5,815)




Deferred tax benefit

(59,999)



(19,856)


Tax benefits from stock plans

(1,968)



(2,355)


Net gain on sale of assets and other

(11,932)



(1,315)


Write-down of inventory

13,917



25,503


Asset impairment

3,316



120,145


Changes in operating assets and liabilities, net of acquisitions:




Decrease (increase) in accounts receivable

68,260



(168,779)


Accounts receivable sold (repurchased), net

(77,116)



78,297


Decrease (increase) in inventories

53,449



(200,204)


Decrease in other assets

5,001



73,382


Increase (decrease) in accounts payable, accrued

expenses, other payables and income taxes

(157,025)



82,642


Increase (decrease) in other long-term liabilities

10,443



(3,084)


Net cash flows from operating activities

195,993



27,747


Cash flows from (used by) investing activities:




Capital expenditures

(113,853)



(73,215)


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

55,360



53,394


Proceeds from the sale of equity method investments



10,802


Acquisitions, net of cash acquired



(48,386)


Decrease (increase) in deposit for letters of credit

31,053



(4,123)


Net cash flows used by investing activities

(27,440)



(61,528)


Cash flows from (used by) financing activities:




Decrease in documentary letters of credit

(74,493)



(55,950)


Short-term borrowings, net change

18,607



(10,253)


Repayments on long-term debt

(64,801)



(33,577)


Proceeds from termination of interest rate swaps

52,733




Stock issued under incentive and purchase plans, net

of forfeitures

(81)



9,615


Cash dividends

(55,617)



(55,177)


Purchase of noncontrolling interests

(55)



(4,027)


Tax benefits from stock plans

1,968



2,355


Net cash flows used by financing activities

(121,739)



(147,014)


Effect of exchange rate changes on cash

(6,782)



3,872


Increase (decrease) in cash and cash equivalents

40,032



(176,923)


Cash and cash equivalents at beginning of year

222,390



399,313


Cash and cash equivalents at end of year

$

262,422



$

222,390



 

 

COMMERCIAL METALS COMPANY

OPERATING STATISTICS AND BUSINESS SEGMENTS (UNAUDITED)


Three Months Ended August 31,


Year Ended August 31,

(short tons in thousands)

2012


2011


2012


2011

Americas Steel Mills rebar shipments

384



367



1,370



1,280


Americas Steel Mills structural and other shipments

318



336



1,312



1,238


Total Americas Steel Mills tons shipped

702



703



2,682



2,518


International Mill shipments

420



399



1,584



1,494










Americas Steel Mills average FOB selling price (total sales)

$

678



$

697



$

706



$

669


Americas Steel Mills average cost ferrous scrap utilized

$

346



$

383



$

379



$

364


Americas Steel Mills metal margin

$

332



$

314



$

327



$

305


Americas Steel Mills average ferrous scrap purchase price

$

304



$

352



$

339



$

329


International Mill average FOB selling price (total sales)

$

570



$

679



$

601



$

638


International Mill average cost ferrous scrap utilized

$

351



$

413



$

385



$

389


International Mill metal margin

$

219



$

266



$

216



$

249


International Mill average ferrous scrap purchase price

$

291



$

349



$

315



$

325










Americas Fabrication rebar shipments

251



244



911



851


Americas Fabrication structural and post shipments

35



35



150



155


Total Americas Fabrication tons shipped

286



279



1,061



1,006










Americas Fabrication average selling price (excluding stock and buyout sales)

$

920



$

866



$

906



$

817


Americas Recycling tons shipped

582



714



2,439



2,469


 

 

(in thousands)

Three Months Ended

August 31,


Year Ended August 31,

Net sales

2012


2011


2012


2011

Americas Recycling

$

359,300



$

523,404



$

1,606,161



$

1,829,537


Americas Mills

539,311



576,992



2,155,817



2,036,325


Americas Fabrication

380,951



357,549



1,381,638



1,225,722


International Mill

268,248



306,808



1,033,357



1,046,233


International Marketing and Distribution

610,485



735,891



2,727,319



2,650,899


Corporate and Eliminations

(280,148)



(256,724)



(1,075,852)



(925,371)


Total net sales

$

1,878,147



$

2,243,920



$

7,828,440



$

7,863,345










Adjusted operating profit (loss)








Americas Recycling

$

8,346



$

10,808



$

39,446



$

43,059


Americas Mills

62,316



45,593



233,933



161,731


Americas Fabrication

1,453



(42,830)



(15,697)



(129,141)


International Mill

5,353



14,584



23,044



47,594


International Marketing and Distribution

1,488



22,749



47,287



76,337


Corporate and Eliminations

(16,359)



(28,412)



(89,286)



(86,004)


Adjusted operating profit from continuing operations

62,597



22,492



238,727



113,576


Adjusted operating profit (loss) from discontinued operations

12,868



(117,301)



(8,675)



(150,678)


Adjusted operating profit (loss)

$

75,465



$

(94,809)



$

230,052



$

(37,102)


 

COMMERCIAL METALS COMPANY
NON-GAAP FINANCIAL MEASURES (UNAUDITED)
(dollars in thousands)

This press release contains financial measures not derived in accordance with generally accepted accounting principles (GAAP). Reconciliations to the most comparable GAAP measures are provided below.

Adjusted Operating Profit (Loss) is a non-GAAP financial measure. Adjusted operating profit (loss) is used to evaluate the financial performance of the Company. Adjusted operating profit (loss) is the sum of our earnings (loss) before income taxes, outside financing costs and discounts on sales of accounts receivable. For added flexibility, we may sell certain accounts receivable both in the U.S. and internationally. We consider sales of receivables as an alternative source of liquidity to finance our operations and believe that removing these costs provides a clearer perspective of the current operating performance. Adjusted operating profit (loss) may be inconsistent with similar measures presented by other companies.

 


Three Months Ended

August 31,


Year Ended August 31,

(in thousands)

2012


2011


2012


2011

Earnings (loss) from continuing operations

$

17,043



$

(5,943)



$

208,983



$

19,278


Interest expense

17,551



16,291



69,496



69,821


Income taxes (benefit)

26,634



10,640



(46,190)



19,328


Discounts on sales of accounts receivable

1,369



1,504



6,438



5,149


Adjusted operating profit from continuing

operations

62,597



22,492



238,727



113,576


Adjusted operating profit (loss) from discontinued operations

12,868



(117,301)



(8,675)



(150,678)


Adjusted operating profit (loss)

$

75,465



$

(94,809)



$

230,052



$

(37,102)


 

Adjusted EBITDA is a non-GAAP financial measure. Adjusted EBITDA is the sum of our earnings (loss) before income taxes, outside financing costs, depreciation, amortization and non-cash impairment charges. It excludes the 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. Additionally, Adjusted EBITDA is one measure used to assess the Company's unleveraged performance of our investments. Adjusted EBITDA may be inconsistent with similar measures presented by other companies.

 


Three Months Ended

August 31,


Year Ended August 31,

(in thousands)

2012


2011


2012


2011

Earnings (loss) from continuing operations

$

17,043



$

(5,943)



$

208,983



$

19,278


Less net earnings attributable to noncontrolling interests

(3)



(50)



(6)



(213)


Interest expense

17,551



16,291



69,496



69,821


Income taxes (benefit)

26,634



10,640



(46,190)



19,328


Depreciation, amortization and impairment charges

33,898



61,308



137,289



178,251


Adjusted EBITDA from continuing operations

95,123



82,246



369,572



286,465


Adjusted EBITDA from discontinued operations

14,028



(19,702)



(5,337)



(49,215)


Adjusted EBITDA

$

109,151



$

62,544



$

364,235



$

237,250


 

Adjusted EBITDA to interest coverage for the

Three Months Ended August 31, 2012

Year Ended August 31, 2012

$109,151

/

17,551

=

6.2


$364,235


/

69,496


=

5.2

















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 August 31, 2012 to the most comparable GAAP measure, stockholders' equity:

 

Stockholders' equity attributable to CMC

$

1,246,368


Long-term debt

1,157,073


Deferred income taxes

20,271


Total capitalization

$

2,423,712


 

OTHER FINANCIAL INFORMATION
Long-term debt to cap ratio as of August 31, 2012:
Debt divided by capitalization

$1,157,073

/

2,423,712

=

47.7%


Total debt to cap plus short-term debt plus notes payable ratio as of August 31, 2012:

($1,157,073

+

4,252

+

24,543)

/

($2,423,712

+

4,252

+

24,543)

=

48.4%

Current ratio as of August 31, 2012:
Current assets divided by current liabilities

$2,239,831

/

901,134

=

2.5


 

SOURCE Commercial Metals Company

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