Oct. 30, 2009 (PR Newswire) --
IRVING, Texas, Oct. 30 /PRNewswire-FirstCall/ -- Commercial Metals Company (NYSE: CMC) today reported net earnings of $7.2 million or $0.06 per diluted share on net sales of $1.5 billion for the quarter ended August 31, 2009. This compares with net earnings of $63.5 million or $0.55 per diluted share on net sales of $3.1 billion for the fourth quarter last year. This year's fourth quarter included after-tax LIFO income of $24.4 million or $0.21 per share compared with expense of $90.9 million or $0.78 per diluted share in last year's fourth quarter. At quarter end, our LIFO reserve totaled $241.7 million. LIFO is an inventory costing method that assumes the most recent inventory purchases or goods manufactured are sold first which in periods of declining prices results in income that eliminates the effect of deflation from operating results. Changes in LIFO are not writedowns, writeoffs or market adjustments. They are changes in cost components based on an assumption of physical inventory flows.
Net earnings for the year ended August 31, 2009 were $20.8 million or $0.18 per diluted share on net sales of $6.8 billion. For the same period last year, net earnings were $232.0 million or $1.97 per diluted share on net sales of $10.4 billion. The annual results included after-tax LIFO income of $208 million or $1.83 per diluted share. This compares with after-tax LIFO expense of $209 million or $1.78 per diluted share last year.
The fourth quarter's disproportionate tax benefit includes the effect of the reversal of the deferred tax liability recorded in prior periods for U.S. taxes on unremitted foreign earnings. Lower pre-tax income for 2009 and its distribution in relatively high tax rate jurisdictions increases the effects of variances from the U.S. statutory rate. The effective tax rate for the year is 40%. Significant items included in the rate are higher taxes due to losses in low tax rate foreign jurisdictions and income subject to state taxes offset by the previously mentioned reversal of the deferred tax liability for prior period U.S. taxes on unremitted foreign earnings to be indefinitely reinvested in foreign operations.
In response to price declines, demand destruction, and a global liquidity and credit crisis, the Company recorded the following consolidated expenses:
Three Months Ended Year Ended
(in millions) 8/31/09 8/31/09
Lower of cost or market inventory
adjustments $16.7 $127.1
Bad debt expense 0.1 33.7
Severance costs 3.2 12.5
Impairment charges 3.4 8.5
Other - contractual noncompliance,
environmental, job loss reserves 16.9 19.3
Selling, general and administrative expenses in the fourth quarter included $11.0 million of pre-tax costs associated with the investment in the global deployment of SAP software compared to $10.6 million in last year's fourth quarter; project to date we have expensed $137.7 million. Other SAP costs of $111.3 million have been capitalized since the inception of the project, of which $5.5 million was capitalized in the current quarter. At August 31, 2009, we successfully ended the project phase of our deployment of SAP, returned significant personnel resources back to our operating units, and combined the SAP expertise with our continuing IT operations. We will continue the deployment of SAP on a more measured pace as well as enhance our supply chain management benefits by optimizing the use of the system. It will no longer be reported as a separate project.
General Conditions
CMC Chairman, President and Chief Executive Officer Murray R. McClean said, "Although we saw increases in steel production and sales volumes in the fourth quarter compared to the third quarter, this was more due to restocking than any pick up in real demand. We remain concerned about continued sustainability of demand. The stimulus effect was negligible in the U.S. Internationally, China continued to benefit from an effective stimulus package and nearby Asian countries also improved. Steel volume increases in Poland were met by lower metal margins impacting profitability. Our tubular mill in Croatia continued to struggle with the downturn in energy markets as well as increased Chinese competition in nearby markets. Overall declines in inventory quantities and prices led to net LIFO income, but rising ferrous scrap prices resulted in some segments incurring expense. We continue to address exposures including unplanned inventory and unwarranted customer contractual noncompliance related to U.S. steel imports. In late August, our micro minimill in Arizona successfully rolled its first rebar."
Americas Recycling
McClean said, "Ferrous and nonferrous pricing reversed the declining trends of the previous six months as pricing rose throughout the quarter. Volumes were greatly reduced compared to the fourth quarter of last year due to reduced domestic mill operating rates and overall lower manufacturing output. Margin decreases from last year's fourth quarter are equally attributable to volume and pricing for ferrous scrap, but more to volume for nonferrous scrap. The adjusted operating loss of $18.7 million stands in stark contrast to the all-time quarterly earnings record of $52.9 million achieved in the fourth quarter of last year. Rising prices led to pre-tax LIFO expense of $8.3 million compared to pre-tax LIFO income of $5.1 million in last year's fourth quarter. The average ferrous scrap sales price for the fourth quarter was $193 per short ton, a 57% decline from last year's fourth quarter, but up 32% from the third quarter this year as domestic mill utilization rates increased. Nonferrous pricing followed a similar trend with average pricing of $1,973 per short ton, down 38% compared to the fourth quarter of last year, but up 27% from the third quarter this year. Shipments of ferrous scrap totaled 513 thousand tons, a decline of 34% from the fourth quarter of last year, but the highest quarterly volume in fiscal 2009. Nonferrous shipments totaled 56 thousand tons, down 29% from last year's fourth quarter. We exported 13% of our ferrous tonnage and 42% of our nonferrous scrap tonnage during the quarter."
Americas Mills
McClean said, "Restocking, seasonal demand and continued public sector projects drove mill capacity utilization rates to 68% for the fourth quarter, up from 58% in the third quarter of this year. These higher volumes, however, were met by lower metal margins as the price increases in ferrous scrap were not matched by price increases in finished goods. General comparisons to the fourth quarter of last year are not favorable as it was the last solid quarter before the recession hit the steel industry full force. Rebar volume in the fourth quarter was strong and merchant volumes, though well off from the prior year, did gain over both the second and third quarters of this year. Import competition, with the exception of Mexico, remains muted.
"Our steel mills earned adjusted operating profit of $28.0 million compared to $45.1 million in the comparable quarter last year; this year's fourth quarter had pre-tax LIFO expense of $5.3 million compared to the $41.5 million pre-tax LIFO expense last year. Our metal margin at $302 per ton was down $88 per ton from the fourth quarter of last year and down $63 per ton from the third quarter of this year. The price of ferrous scrap consumed at the mills during the quarter fell $187 per ton compared to last year's fourth quarter, but our average selling price for finished goods of $563 per ton fell $275 per ton. Sales volumes declined 23% to 486 thousand tons, all attributable to a drop off in merchant bar tons. Rebar accounted for 61% of tonnage shipped in the fourth quarter, the highest percentage of the year. The price premium of merchant bar over reinforcing bar averaged $193 per ton, up $39 per ton from the third quarter. On a fourth quarter-to-quarter basis, tonnage melted was down 24% to 469 thousand tons, while tonnage rolled declined 21% to 429 thousand tons. Lower production rates and price decreases in alloys, natural gas, and electricity resulted in an overall decrease of $35.0 million in these costs for the quarter compared to last year."
McClean added, "Our copper tube mill reported an adjusted operating profit of $1.5 million (including pre-tax LIFO expense of $3.4 million) compared to $4.1 million (including pre-tax LIFO income of $1.3 million) in the fourth quarter of last year. The mill remained profitable with constant pounds sold, but higher metal margins. Demand is mainly from public projects and healthcare."
Americas Fabrication & Distribution
McClean said, "Our Americas Fabrication & Distribution segment reported an adjusted operating profit of $10.3 million compared to last year's operating loss of $68 million. The current quarter recorded pre-tax LIFO income of $52.0 million, whereas last year's fourth quarter suffered a pre-tax LIFO expense of $100.9 million. The contrast in market conditions in the intervening year could not be starker. Fiscal 2008 was a year of rising prices and margin compression for fabrication; fiscal 2009 was a year of falling prices and margin expansion as higher priced backlog was rolled off. With deteriorating economic conditions, the backlog was receding in both pricing and volume leading to lower sales and shipments in the fourth quarter. The segment took a $3.4 million impairment charge for discontinuance of original trade names from certain acquisitions. The composite average fab selling price (excluding stock and buyouts) was $911 per ton, 21% below last year's fourth quarter and a 15% decline from the third quarter of this year. Our largest challenge in this segment remains in our domestic steel import and distribution business. We continue to take aggressive action on unwarranted contract cancellations, market claims, and price renegotiations. Wherever warranted, we have increased our bad debt allowance and taken lower of cost or market adjustments on inventory positions."
International Mills
According to McClean, "International steel markets, with the exception of the Asia Pacific region, remained weak. Metal margin compression continued at CMC Zawiercie though volumes were encouragingly up on billet exports. CMC Croatia suffered from the global downturn in energy markets. The segment had an adjusted operating loss in the fourth quarter of $18.7 million compared to the all-time quarterly record of $57.1 million profit last year. The two mills' results, compared to the third quarter, headed in opposite directions. CMC Zawiercie's adjusted operating loss for the fourth quarter was $3.4 million compared to $9.2 million loss in the third quarter; CMC Croatia's fourth quarter result was a loss of $15.3 million compared to a loss of $8.5 million in the third quarter.
