IRVING, Texas, Oct. 24 /PRNewswire-FirstCall/ -- Commercial Metals
Company (NYSE: CMC) today reported record net earnings of $356 million or
$2.89 per diluted share on net sales of $7.6 billion for the year ended
August 31, 2006. This compares with net earnings of $286 million or $2.32
per diluted share on net sales of $6.6 billion last year, which was the
previous record year. The Company's net earnings return on beginning equity
was 40%.
Fourth quarter net earnings were a record for any quarter at $128.7
million or $1.04 per diluted share on net sales of $2.2 billion. This
compares with $83.7 million or $0.69 per diluted share on net sales of $1.7
billion in the fourth quarter a year ago.
The current year quarter included pre-tax LIFO expense of $16.2 million
($0.09 per diluted share) compared with pre-tax LIFO income of $16.7
million ($0.09 per diluted share) in the prior year quarter. Comparable
numbers for the year were $78 million pre-tax expense ($0.41 per diluted
share) this year and $19.3 million pre-tax expense ($0.10 per diluted
share) in the previous year. LIFO inventory valuation reserves were $189.3
million at year end.
The prior year's fourth quarter results included pre-tax income of
$11.6 million for final settlement of business interruption insurance
claims for the transformer failures in previous years at the Texas and
South Carolina mills. For all of fiscal 2005, the business interruption
recoveries amounted to pre- tax income of $20.1 million.
The effective tax rate for the quarter was 30.2% compared with last
year's 32.5%, and for the whole year was 33.9% compared with fiscal 2005 at
35.7%. The lower rate was due to a shift in earnings (higher profits in
Poland), the new manufacturing tax deduction, and the favorable treatment
offered by the repatriation of foreign earnings.
General Conditions
Stanley A. Rabin, CMC Chairman (see below), said, "Fiscal year 2006 was
our third consecutive record, a superlative year by any standard, and it
closed with the best quarter ever. We continued to benefit in the fourth
quarter from favorable market conditions for most of our businesses and
achieved excellent performance in all of our segments: Domestic Mills,
Domestic Fabrication, Recycling, CMCZ (our Polish steel operation) and
Marketing and Distribution. Certainly the strong global expansion has
helped, but as well our people have performed at high levels. It would
appear that most international steel and nonferrous prices peaked (for this
part of the cycle) during our fourth quarter, but our prices stand at very
strong levels. End-use demand remained strong. We believe that inventory
levels for our various products generally are stable at normal levels.
"Our outlook for the first quarter of fiscal 2007 remains very
positive. As discussed in more detail later in this release, we anticipate
first quarter LIFO diluted net earnings per share between $0.65 and 0.75
compared to last year's first quarter of $0.57."
Domestic Mills
Rabin said, "Our Domestic Mills segment's fourth quarter adjusted
operating profit at $95.8 million was another record, 31% above last year's
previous record fourth quarter. Moreover, the LIFO expense was $3.7 million
pre-tax in this year's fourth quarter compared with $11.9 million pre-tax
income last year. Net sales increased 25% to $442 million."
Rabin continued, "Within the segment, adjusted operating profit for our
steel minimills was $77.5 million, 6% greater than a year earlier,
including a big swing in LIFO, on 17% higher net sales. The previous year
also included the business interruption recovery. The strength of higher
selling prices combined with increased finished goods shipments more than
offset higher raw material costs. Compared with last year's fourth quarter,
the metal spread increased by 9% to $318 per ton. On a year-to-year basis,
tonnage melted for the fourth quarter was up 23% to 616 thousand tons while
tonnage rolled was 571 thousand tons, 24% above last year's fourth quarter
(production cutbacks last year). Shipments increased 3% to 625 thousand
tons. Our average total selling price was up $89 per ton to $548 per ton,
while the average selling price for finished goods was up by $84 per ton to
$563 per ton. By product line, the price premium of merchant bar over
reinforcing bar increased by $13 per ton to $83 per ton. The average scrap
purchase cost escalated by $66 per ton from a year ago to $200 per ton.
Total utility costs increased by $5.8 million compared with the fourth
quarter last year, with the main increase related to electricity.
Year-over-year costs for ferroalloys, graphite electrodes and other
supplies increased, while transportation rates rose significantly. The new
continuous caster at the Texas mill had an excellent start up during the
fourth quarter.
"The copper tube mill (CMC Howell Metal) recorded an adjusted operating
profit of $18.3 million compared with breakeven in last year's fourth
quarter on net sales that virtually doubled, although volume was reduced.
Included in the results was a pre-tax LIFO expense of $6.3 million compared
with a negligible number last year. Market conditions were mixed. The
decline in housing starts coupled with the extraordinarily high price of
copper reduced the demand for copper plumbing tube across the U.S. Our
sales of plumbing tube were lower, but sales of higher value-added products
increased disproportionately. We matched production and inventory levels to
coincide with order intake levels. We were able to increase the average
selling price to $5.10 per pound and metal spreads widened significantly to
$2.56 per pound, up from $0.71 cents per pound, more than offsetting the
dramatic jump in the cost of copper scrap. Against the same quarter last
year, copper tube production decreased 10% to 13.7 million pounds while
shipments were down 18% to 13.5 million pounds."
CMCZ
Rabin said, "We benefited from the improved economic situation in
Central and Western Europe and especially from stepped-up construction in
Poland and Germany. CMCZ, the Polish steel operation, had an outstanding
quarter and recorded an adjusted operating profit of $38.0 million on a
100%-owned basis compared with a small profit the previous year on net
sales 42% higher, buoyed by markedly improved prices and margins coupled
with strong operating levels and shipments. And this year's quarter
included significant maintenance and modernization. For the quarter, tons
melted were 338 thousand against 351 thousand last year. Shipments totaled
378 thousand tons (including billets) compared with 389 thousand last year,
but finished goods shipments were 16% higher this year at 351 thousand
tons. Meanwhile, the average selling price rose to PLN 1,552 per ton
(including 7% billets) from PLN 1,149 per ton (including 22% billets), with
gains both in bar products and wire rod. The sales gain exceeded the
increase in the cost of purchased scrap utilized; accordingly, the average
metal margin increased to PLN 777 per ton from an inadequate PLN 544 per
ton. The first full quarter for operation of the new scrap mega-shredder
was very successful, and the greenfield rebar fabrication plant also at
Zawiercie started up well in July 2006."
Domestic Fabrication
Rabin added, "Net sales were up 19% from a year ago, mainly on account
of increased volume, but compared with last year adjusted operating profit
decreased by 14% to $21.8 million; one large difference was a $1.1 million
pre-tax LIFO expense this quarter, whereas last year's LIFO impact was
pre-tax income of $2.5 million. Additionally, the cost of steel was up
considerably resulting in some margin squeeze. Compared with the prior
year's fourth quarter, total shipments from our fab plants rose 30% to 483
thousand tons including a significant increase for fabricated rebar. The
composite average fab selling price (excluding stock and buyouts) increased
3% versus the prior year with realized selling prices up for all products.
End-use markets remained relatively strong in all sectors, led by public
and institutional building and highway construction."
Recycling
According to Rabin, "The Recycling segment achieved a record quarter -
in a string of excellent quarters - with net sales up 119% compared with
one year ago. The adjusted operating profit of $45.1 million was 195% above
last year's fourth quarter. LIFO income was $2.1 million pre-tax this
quarter versus nil the prior year. Ferrous scrap prices peaked early in the
fourth quarter, and then declined. Nevertheless, the price level remained
relatively high; versus last year, the average ferrous scrap sales price
for the quarter increased by 54% to $214 per short ton while stock
shipments of ferrous scrap rose 37% to 612 thousand short tons. The average
nonferrous scrap sales price for the quarter jumped nearly 77% compared
with a year ago, although nonferrous scrap prices rose less than terminal
market values on account of ample supply; nonferrous stock shipments were
26% higher at 98 thousand tons. Inventory turnover across the board
remained extremely rapid. The total volume of scrap processed, including
all our domestic processing plants, equaled 1.02 million tons against 812
thousand tons last year."
Marketing and Distribution
"Adjusted operating profit for the Marketing and Distribution segment
of $13.9 million was 37% below last year's record fourth quarter on 16%
higher net sales," Rabin said. "A major factor this quarter was a
historically high pre-tax LIFO expense of $13.5 million compared with
income of $2.2 million the year before. Market conditions varied by product
and geography, but overall were favorable. Steel tonnage was up in most of
our markets, especially sales into the U.S., although sales dollars were
mixed in the various markets. Asian steel prices were the weakest. Gross
margins for steel products increased overall, resulting in increased
profitability for this large product line. Aluminum, copper and stainless
steel semis were characterized by higher prices but lower volumes, which on
balance resulted in higher gross margins, but higher transaction costs as
well. Sales and margins for industrial materials and products though solid,
were off the peaks of last year reflecting mostly weaker market conditions
and volatile prices. Higher freight rates cut into margins in several of
the divisions. Our value-added downstream and processing businesses
continued to perform well, although not as profitably as recent quarters.
Structured trade finance continued to play a constructive role in this
segment."
Financial Condition
Rabin said, "Our financial position remains excellent. At August 31,
2006, our stockholders' equity exceeded $1.2 billion. At quarter end, our
working capital was $962 million and the current ratio was 1.8. Our
coverage ratios remain strong. Long-term debt as a percentage of total
capitalization was 20%, and the ratio of total debt to total capitalization
plus short-term debt was 26%. Both ratios include the debt of CMCZ, which
has recourse only to the assets of CMCZ."
CMC Share Repurchases
During June and the first half of July 2006, the Company purchased
1,811,000 shares of the Company's common stock in open market transactions
at an average of $23.05 per share. These purchases completed the existing
program and on July 19, 2006, the CMC Board authorized the purchase of up
to 5,000,000 additional shares. Subsequently and prior to the Company's
year-end blackout period, CMC purchased another 1,658,240 shares at an
average price of $22.27 per share.
Succession Planning
In accordance with Commercial Metals Company's established succession
plan, Rabin announced on July 24, 2006 that the Board of Directors named
Murray R. McClean Chief Executive Officer effective September 1, 2006. In
addition, Mr. McClean was elected a Director of the Company effective
immediately. Mr. McClean formerly was President and Chief Operating
Officer. He continued in his capacity as President in addition to his new
position as Chief Executive Officer. Mr. Rabin continued in his role as
Chairman of the Board. McClean's former position of COO was not filled.
Outlook
Murray R. McClean, CMC President & CEO, said, "The prospects are
excellent for another strong year for CMC. It should exhibit the
traditional seasonal pattern of a good start, seasonal slowdown, and strong
pickup in our third and fourth quarter. If CMCZ can weather the winter in
good order, the year may well approach fiscal 2006 though LIFO's impact is
always difficult to quantify.
"We see solid demand in most of our global markets and inventories of
most products appear in line with sales. Although some economists point to
a slowing global economy, the overall level of activity remains robust and
broad-based. Worldwide manufacturing activity continues to expand. While
residential construction in the U.S. has weakened, non-residential
construction remains strong in the U.S., Asia and South America, and has
picked up in Europe. More pointedly, construction materials generally are
in strong demand. Our domestic steel mill markets remain vibrant and
Central Europe has strengthened. While imports of carbon steel bar products
in recent months have increased sharply into the U.S., strong demand
appears to be absorbing the supply. Our mill shipments in the U.S. and
Poland will remain strong during the first quarter of fiscal 2007, and
realized steel prices should remain high. There is good news on the energy
cost side, especially the fall in natural gas prices. Steel scrap prices
will remain at high levels, although likely to be down for the quarter.
Nonferrous markets continue at historically high levels. Demand for
downstream products and services remains vibrant, and the current
short-term margin compression should abate."
McClean added, "Net income from our domestic steel mills should remain
very strong during the first quarter, above the first quarter of last year
although down from the fourth quarter of fiscal 2006. In addition, we have
scheduled shutdowns at each of our domestic steel mills during the quarter
for routine maintenance or budgeted capital projects. Earnings from the
copper tube business will be lower than the fourth quarter of fiscal 2006.
Results at CMCZ are expected to remain excellent. Our anticipation is that
fabrication profits will improve as finished goods steel prices remain
relatively flat. Our Recycling segment will again post strong results, both
from ferrous and nonferrous areas, although down from the fourth quarter of
fiscal 2006. We expect the Marketing and Distribution segment to have
another satisfactory quarter driven by relatively firm volume and margins
in various steel markets, improved results in nonferrous semis, and steady
performance for industrial materials."
Conference Call
CMC invites you to listen to a live broadcast of its fourth
quarter/year- end 2006 conference call on Tuesday, October 24, 2006, at
3:00 p.m. ET. The call will be hosted by Stan Rabin, Chairman; Murray
McClean, President and CEO; and Bill Larson, 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 webcast.
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 overseas markets.
The opening caption, the General Conditions and the Outlook sections of
this news release contain forward-looking statements regarding the outlook
for the Company's financial results including net earnings, product pricing
and demand, production rates, energy expense, raw material prices,
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," "presumes," "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 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,
global factors including political and military uncertainties, credit
availability, 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 Fiscal year ended
(Short Tons in Thousands) 8/31/06 8/31/05 8/31/06 8/31/05
Domestic Steel Mill
Rebar Shipments 274 260 1,102 944
Domestic Steel Mill
Structural and Other
Shipments 351 346 1,390 1,322
CMCZ Shipments 378 389 1,250 1,092
Total Mill Tons Shipped 1,003 995 3,742 3,358
Average FOB Mill Domestic
Selling Price
(Total Sales) $548 $459 $513 $473
Average Domestic Mill
Ferrous Scrap Purchase
Price $200 $134 $191 $171
Average FOB Mill CMCZ
Selling Price
(Total Sales) $500 $344 $437 $418
Average CMCZ Ferrous
Scrap Purchase Price $228 $156 $197 $198
Fab Plant Rebar Shipments 333 239 1,092 890
Fab Plant Structural,
Joist, and Post Shipments 150 132 553 452
Total Fabrication Tons
Shipped 483 371 1,645 1,342
Average Fab Selling Price
(Excluding Stock &
Buyout Sales) $886 $863 $866 $850
Domestic Scrap Metal
Tons Processed and
Shipped 1,020 812 3,697 3,331
BUSINESS SEGMENTS
(in thousands)
Three months ended Fiscal year ended
8/31/06 8/31/05 8/31/06 8/31/05
Net Sales:
Domestic Mills $441,833 $354,827 $1,600,255 $1,298,421
CMCZ 195,920 137,520 573,720 478,255
Domestic Fabrication 503,160 423,931 1,771,790 1,473,686
Recycling 466,570 213,078 1,360,457 896,946
Marketing and
Distribution 843,282 725,489 2,953,577 2,926,325
Corporate and
Eliminations (201,325) (114,784) (703,875) (480,936)
Total Net Sales $2,249,440 $1,740,061 $7,555,924 $6,592,697
Adjusted Operating
Profit (Loss):
Domestic Mills $95,763 $73,101 $301,113 $216,875
CMCZ 37,968 1,850 52,791 (188)
Domestic Fabrication 21,787 25,393 95,999 117,856
Recycling 45,061 15,268 99,963 70,828
Marketing and
Distribution 13,870 21,999 69,755 90,417
Corporate and
Eliminations (9,825) (3,654) (32,367) (17,463)
COMMERCIAL METALS COMPANY
Fourth Quarter and Year Operating Results (Unaudited)
(in thousands except share data)
Three months ended
2006 2005
Net sales $2,249,440 $1,740,061
Costs and Expenses:
Cost of goods sold 1,906,486 1,511,864
Selling, general and administrative expenses 139,162 95,367
Interest expense 8,753 7,761
2,054,401 1,614,992
Earnings Before Income Taxes and Minority
Interests 195,039 125,069
Income Taxes 58,907 40,667
Earnings Before Minority Interests 136,132 84,402
Minority Interests 7,472 662
Net Earnings $128,660 $83,740
Basic earnings per share $1.08 $0.72
Diluted earnings per share $1.04 $0.69
Cash dividends per share $0.06 $0.03
Average basic shares outstanding 118,763,254 116,201,548
Average diluted shares outstanding 123,184,476 121,391,718
Fiscal year ended
2006 2005
Net sales $7,555,924 $6,592,697
Costs and Expenses:
Cost of goods sold 6,476,832 5,693,483
Selling, general and administrative expenses 495,030 424,994
Interest expense 29,569 31,187
7,001,431 6,149,664
Earnings Before Income Taxes and Minority
Interests 554,493 443,033
Income Taxes 187,937 157,996
Earnings Before Minority Interests 366,556 285,037
Minority Interests (Benefit) 10,209 (744)
Net Earnings $356,347 $285,781
Basic earnings per share $3.02 $2.42
Diluted earnings per share $2.89 $2.32
Cash dividends per share $0.17 $0.12
Average basic shares outstanding 117,989,877 118,048,880
Average diluted shares outstanding 123,459,069 123,380,174
Note: All prior year share data adjusted for May 2006 stock split.
COMMERCIAL METALS COMPANY
Consolidated Condensed Balance Sheets (Unaudited)
(in thousands)
Fiscal year ended
2006 2005
Assets:
Current Assets:
Cash and cash equivalents $180,719 $119,404
Accounts receivable, net 1,134,823 829,192
Inventories 762,635 706,951
Other 66,615 45,370
Total Current Assets 2,144,792 1,700,917
Net Property, Plant and Equipment 588,686 505,584
Goodwill 35,749 30,542
Other Assets 129,641 95,879
$2,898,868 $2,332,922
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable - trade $526,408 $408,342
Accounts payable - documentary letters of credit 141,713 140,986
Accrued expenses and other payables 379,764 293,598
Income taxes payable and deferred income taxes 14,258 40,126
Short-term trade financing arrangements - 1,667
Notes payable - CMCZ 60,000 -
Current maturities of long-term debt 60,162 7,223
Total Current Liabilities 1,182,305 891,942
Deferred Income Taxes 34,550 45,629
Other Long-Term Liabilities 78,789 58,627
Long-Term Trade Financing Arrangement - -
Long-Term Debt 322,086 386,741
Minority Interests 61,034 50,422
Stockholders' Equity 1,220,104 899,561
$2,898,868 $2,332,922
COMMERCIAL METALS COMPANY
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Fiscal year ended
2006 2005
Cash Flows From (Used by) Operating
Activities:
Net earnings $356,347 $285,781
Adjustments to reconcile net earnings to
cash from operating activities:
Depreciation and amortization 85,378 76,610
Minority interests (benefit) 10,209 (744)
Asset impairment charges - 300
Provision for losses on receivables 2,676 6,604
Share-based compensation 9,526 1,115
Loss on reacquisition of debt - -
Net gain on sale of assets (2,518) (877)
Changes in Operating Assets and Liabilities,
Net of Effect of Acquisitions:
Accounts receivable (297,924) (217,398)
Inventories (36,196) (49,313)
Other assets (48,498) (6,997)
Accounts payable, accrued expenses, other
payables and income taxes 171,045 83,757
Deferred income taxes (34,459) (8,934)
Other long-term liabilities 17,797 18,499
Net Cash Flows From Operating Activities 233,383 188,403
Cash Flows From (Used by) Investing Activities:
Purchases of property, plant and equipment (131,235) (110,214)
Purchase of interests in CMC Zawiercie
and subsidiaries (1,165) -
Sales of property, plant and equipment
and other 11,290 5,034
Acquisitions, net of cash acquired (44,391) (12,310)
Net Cash Used By Investing Activities (165,501) (117,490)
Cash Flows From (Used by) Financing Activities:
Increase in documentary letters of credit 727 24,288
Payments on trade financing arrangements (1,667) (22,322)
Short-term borrowings, net change 60,000 (586)
Proceeds from issuance of long-term debt 14,495 -
Payments on long-term debt (28,800) (17,222)
Stock issued under incentive and purchase
plans 23,659 18,703
Tax benefits from stock plans 21,240 12,183
Treasury stock acquired (78,662) (77,077)
Dividends paid (20,212) (13,652)
Net Cash From (Used By) Financing Activities (9,220) (75,685)
Effect of Exchange Rate Changes on Cash 2,653 617
Increase (Decrease) in Cash and Cash Equivalents 61,315 (4,155)
Cash and Cash Equivalents at Beginning of Year 119,404 123,559
Cash and Cash Equivalents at End of Year $180,719 $119,404
COMMERCIAL METALS COMPANY
Non-GAAP Financial Measures (Unaudited)
(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.
Three Months Year
Ended Ended
8/31/06 8/31/06
Net earnings $128,660 $356,347
Interest expense 8,753 29,569
Income taxes 58,907 187,937
Depreciation and amortization 23,856 85,378
EBITDA $220,176 $659,231
EBITDA to interest coverage
for the quarter ended August 31, 2006:
$220,176 / 8,753 = 25.2
for the year ended August 31, 2006:
$659,231 / 29,569 = 22.3
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, 2006 to the nearest GAAP measure,
stockholders' equity:
Stockholders' equity $1,220,104
Long-term debt 322,086
Deferred income taxes 34,550
Total capitalization $1,576,740
Other Financial Information
Long-term debt to cap ratio as of August 31, 2006:
Debt divided by capitalization
$322,086 / 1,576,740 = 20.4%
Total debt to cap plus short-term debt ratio as of August 31, 2006:
($322,086 + 120,162) / (1,576,740 + 120,162) = 26.1%
Current ratio as of August 31, 2006:
Current assets divided by current liabilities
$2,144,792 / 1,182,305 = 1.8
SOURCE Commercial Metals Company
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Related links:
http://www.cmc.com
CONTACT:
Debbie Okle, Director, Public Relations,
+1-214-689-4354
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