Gerdau Ameristeel Announces Record 2007 Results and Special Dividend Payment
TAMPA, FL, Feb. 13 /PRNewswire-FirstCall/ — Gerdau Ameristeel Corporation (NYSE: GNA; TSX: GNA) today reported net income of $141.4 million ($0.37 per share fully diluted) for the three months ended December 31, 2007, a 112% increase in comparison to net income of $66.7 million ($0.22 per share fully diluted) for the three months ended December 31, 2006.
For the year ended December 31, 2007, net income was $537.9 million ($1.65 per share fully diluted) an increase of 44% compared to net income of $374.6 million ($1.23 per share fully diluted) for the year ended December 31, 2006. This represents a record level of annual net income earned by Gerdau Ameristeel.
Net sales for the three months ended December 31, 2007 increased 70% to $1.7 billion from $1.0 billion for the three months ended December 31, 2006. For the three months ended December 31, 2007, finished steel shipments increased to 2.2 million tons, an increase of 689 thousand tons from the three months ended December 31, 2006, primarily as a result of the acquisition of Chaparral Steel. Additionally, average mill finished steel selling prices for the three months ended December 31, 2007 increased 17% over the level in this same period in 2006.
For the year ended December 31, 2007, net sales were $5.8 billion compared to $4.5 billion for the year ended December 31, 2006. For the year ended December 31, 2007, finished steel shipments increased to 7.6 million tons, an increase of 998 thousand tons from the year ended December 31, 2006, primarily as a result of the 2007 acquisition of Chaparral Steel, and the 2006 acquisitions of Sheffield Steel and Pacific Coast Steel. Additionally, average mill finished steel selling prices for the year ended December 31, 2007 increased 13% over those in 2006.
For the three months ended December 31, 2007, metal spread, the difference between mill selling prices and scrap raw material costs, was $456 per ton, and an increase of $52 per ton from the same period in 2006. For the year ended December 31, 2007, metal spread was $421 per ton, an increase of $40 per ton from 2006.
EBITDA was $313.8 million for the three months ended December 31, 2007 and $1.0 billion for the year ended December 31, 2007, compared to EBITDA of $145.1 million for the three months ended December 31, 2006 and $751.2 million for the year ended December 31, 2006.
Included in selling and administrative expense for the three months and year ended December 31, 2007 is a non-cash pretax expense of $6.7 million and $22.7 million, respectively, to mark to market outstanding stock appreciation rights and expenses associated with other executive compensation agreements compared to a non-cash pretax expense of $3.8 million and $34.4 million, respectively, for the three months and year ended December 31, 2006.
On November 7, 2007, the Company completed its offering of 126.5 million common shares raising net proceeds of approximately $1.5 billion. The funds were primarily used to partially repay debt that was incurred to finance the acquisition of Chaparral Steel, which was completed in the third quarter of 2007.
On February 12, 2008, in addition to the normal quarterly dividend of $0.02 (two US$ cents), the Board of Directors also approved a special cash dividend of $0.25 (twenty-five US$ cents) per common share, payable March 13, 2008 to shareholders of record at the close of business on February 28, 2008.
CEO Comments Mario Longhi, President and CEO of Gerdau Ameristeel, commented:
“This was another outstanding year for Gerdau Ameristeel. It was a record year for our financial performance, surpassing $1.0 billion in EBITDA for the first time in our history. When you look past all the financial accomplishments, I am particularly proud that we continue to make progress toward our vision of an injury free workplace by continuously reducing our lost time accident rate; creating a safer work environment for our employees.
We are also making steady progress with the integration of our acquisitions, including the recently acquired mills in Midlothian, Texas and Petersburg, Virginia. We have already begun to see great results in the commercial area, which is helping to ensure a seamless transition with our customers, as well as many operational improvements through the implementation of the Gerdau business system and sharing of best practices. We were able to capture approximately $15 million dollars of synergies in 2007 for an annualized rate of over $50 million. We are confident that we can achieve our target of a $75 million annual rate of synergies by the end of 2008.
With the completion in November 2007 of one of the largest follow-on equity offerings in the North American steel industry, our balance sheet is strong and well positioned to continue to support further growth. In accordance with our strategic growth plans, earlier today we announced that our downstream joint venture Pacific Coast Steel (“PCS”) has reached an agreement to acquire Century Steel, a reinforcing and structural steel contracting and placing services business in Nevada, California, Utah, and New Mexico and concurrently with the closing of this transaction we will increase our ownership of PCS to over 80%.
Despite signs of a slowing North American economy, as we enter 2008, market conditions remain positive. Import levels remain lower than recent years, global steel demand and prices are creating export opportunities, and inventory levels in North America remain at low levels throughout the system. We have announced price increases in order to offset increases in scrap and other input costs and we remain focused on keeping metal spreads robust.”
Forward Looking Statements
In this press release, “Gerdau Ameristeel” and “Company” refer to Gerdau Ameristeel Corporation and its subsidiaries and 50%-owned joint ventures. Certain statements in this press release, including, without limitation, the section entitled “CEO Comments” constitute forward-looking statements. Such statements describe the Company’s assumptions, beliefs and expectations with respect to its operations, future financial results, business strategies and growth and expansion plans can often be identified by the words “anticipates,”"believes,”"estimates,”"expects,”"intends,”"plans,” and other words and terms of similar meaning. The Company cautions readers that forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those currently projected by the Company. In addition to those noted in the statements themselves, any number of factors could affect actual results, including, without limitation:
Excess global steel industry capacity and the availability of competitive substitute materials; the cyclical nature of the steel industry and the industries served by the Company; steel imports and trade regulations; a change in China’s steelmaking capacity or slowdown in China’s steel consumption; the ability to integrate newly-acquired businesses such as Chaparral and achieve synergies; the Company’s level of indebtedness; the Company’s participation in consolidation of the steel industry; increases in the cost of steel scrap, energy and other raw materials; the ability to renegotiate collective bargaining agreements and avoid labor disruptions; the cost of compliance with environmental and occupational health and safety laws; the enactment of laws intended to reduce greenhouse gases and other air emissions; unexpected equipment failures and plant interruptions or outages; the substantial capital investment and similar expenditures required in the Company’s business; the loss of key employees; interest rate risk; the Company’s ability to fund its pension plans; currency exchange rate fluctuations; competitors’ relief of debt burdens and legacy costs by seeking protection under the bankruptcy laws; the accuracy of estimates used in the preparation of the Company’s financial statements; and the Company’s reliance on joint ventures that it does not control.
Any forward-looking statements in this press release are based on current information as of the date of this press release and the Company does not undertake any obligation to update any forward-looking statements to reflect new information, future developments or events, except as required by law.
Notice of Conference Call
Gerdau Ameristeel invites you to listen to a live broadcast of its fourth quarter conference call on Wednesday, February 13, 2008, at 2:00 pm EST. The call will be hosted by Mario Longhi, President and CEO, and Barbara Smith, VP and CFO, and can be accessed via our Web site at http://www.gerdauameristeel.com/. Web cast attendees are welcome to listen to the conference in real-time or on-demand at your convenience.
About Gerdau Ameristeel
Gerdau Ameristeel is the second largest mini-mill steel producer in North America with an annual manufacturing capacity of approximately 12 million tons of mill finished steel products. Through its vertically integrated network of 19 mini-mills (including one 50%-owned joint venture mini-mill), 19 scrap recycling facilities and 61 downstream operations, Gerdau Ameristeel serves customers throughout the United States and Canada. The Company’s products are generally sold to steel service centers, to steel fabricators, or directly to original equipment manufacturers (“OEMs”) for use in a variety of industries, including non-residential, infrastructure, commercial, industrial and residential construction, metal building, manufacturing, automotive, mining, cellular and electrical transmission and equipment manufacturing. Gerdau Ameristeel’s common shares are traded on the New York Stock Exchange and the Toronto Stock Exchange under the symbol GNA.
EBITDA (earnings before interest, taxes, depreciation and amortization, minority interest, foreign exchange, writedown of short-term investments, deducting earnings from 50% owned joint ventures and adding cash distributions from 50% owned joint ventures) is a non-GAAP measure that management believes is a useful supplemental measure of cash available prior to debt service, capital expenditures and income tax. Investors are cautioned that EBITDA should not be construed as an alternative to net income determined in accordance with GAAP as an indicator of the Company’s performance or to cash flows from operations as a measure of liquidity and cash flows. EBITDA does not have a standardized meaning prescribed by GAAP. The Company’s method of calculating EBITDA may differ from the methods used by other companies and, accordingly, it may not be comparable to similarly titled measures used by other companies. Reconciliation of EBITDA to net income is shown below: For the Three Months Ended – Unaudited —————————- December 31, December 31, 2007 2006 As Amended ————- ————- ($000s) Net income $ 141,392 $ 66,682 Income tax expense 45,285 38,891 Interest and other expense on debt 63,986 11,153 Interest income (6,463) (4,114) Depreciation 51,330 29,057 Amortization, including deferred financings costs 28,433 1,246 Earnings from joint ventures (11,862) (12,588) Cash distribution from 50% owned joint ventures 10,000 10,000 Foreign exchange (gain) loss, net (25,467) 2,026 Writedown of short-term investments 8,879 – Minority interest 8,246 2,713 ————- ————- EBITDA $ 313,759 $ 145,066 ————- ————- ————- ————- For the Year Ended – Unaudited —————————- December 31, December 31, 2007 2006 As Amended ————- ————- ($000s) Net income $ 537,869 $ 374,596 Income tax expense 235,862 196,635 Interest and other expense on debt 107,738 62,525 Interest income (17,977) (18,906) Depreciation 143,284 142,985 Amortization, including deferred financings costs 35,433 3,505 Earnings from 50% owned joint ventures (54,079) (115,606) Cash distribution from 50% owned joint ventures 62,078 101,576 Foreign exchange (gain) loss, net (33,321) 1,135 Writedown of short-term investments 8,879 – Minority interest 23,080 2,713 ————- ————- EBITDA $ 1,048,846 $ 751,158 ————- ————- ————- ————- SUPPLEMENTAL OPERATING AND FINANCIAL INFORMATION – UNAUDITED THE INFORMATION IN THIS TABLE EXCLUDES 50% OWNED JOINT VENTURES For the Three Months Ended December 31, 2007 December 31, 2006 ————————- ————————- Tons Tons ———– ———– Production Melt Shops 2,231,690 1,525,232 Rolling Mills 2,129,814 1,484,951 Tons % Tons % ———– ———– ———– ———– Finished Steel Shipments Rebar 419,271 19% 345,117 23% Merchant/Special Sections 1,242,898 57% 714,306 48% Rod 172,068 8% 142,531 10% Fabricated Steel 338,170 16% 281,689 19% ———– ———– ———– ———– Total Shipments 2,172,407 100% 1,483,643 100% $/Ton $/Ton ———– ———– Selling Prices Mill external shipments 687 587 Fabricated steel shipments 929 763 Scrap Charged 231 183 Metal Spread (Selling price less scrap) Mill external shipments 456 404 Fabricated steel shipments 698 580 Mill manufacturing cost 294 266 SUPPLEMENTAL OPERATING AND FINANCIAL INFORMATION – UNAUDITED THE INFORMATION IN THIS TABLE EXCLUDES 50% OWNED JOINT VENTURES For the Year Ended December 31, 2007 December 31, 2006 ————————- ————————- Tons Tons ———– ———– Production Melt Shops 7,525,318 6,679,084 Rolling Mills 7,377,855 6,402,295 Tons % Tons % ———– ———– ———– ———– Finished Steel Shipments Rebar 1,680,617 22% 1,518,827 23% Merchant/Special Sections 3,730,125 49% 3,152,705 48% Rod 733,322 10% 729,595 11% Fabricated Steel 1,407,164 19% 1,152,282 18% ———– ———– ———– ———– Total Shipments 7,551,228 100% 6,553,409 100% $/Ton $/Ton ———– ———– Selling Prices Mill external shipments 648 575 Fabricated steel shipments 889 770 Scrap Charged 227 194 Metal Spread (Selling price less scrap) Mill external shipments 421 381 Fabricated steel shipments 662 576 Mill manufacturing cost 272 249 50% Owned Joint Venture Results The following table summarizes the results of the Company’s portion of its 50% owned joint ventures, primarily Gallatin Steel, a flat rolled mill joint venture. Three Months Ended – Unaudited Year Ended – Unaudited December 31, December 31, December 31, December 31, 2007 2006 2007 2006 ————- ————- ————- ————- Tons Shipped 199,359 157,705 802,068 772,915 ($000s) Income from Operations $ 11,879 $ 13,011 $ 55,383 $ 116,293 Net Income 11,864 12,588 54,081 115,606 EBITDA 14,896 15,932 66,540 126,113 $/Ton $/Ton $/Ton $/Ton —– —– —– —– Average Selling Price 540 560 538 591 Scrap Charged 275 239 266 243 ————- ————- ————- ————- Metal Spread 265 321 272 348 ————- ————- ————- ————- Income from Operations 60 83 69 150 EBITDA 75 101 83 163 GERDAU AMERISTEEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (US$ in thousands, except earnings per share data) (Unaudited) Three Months Ended Year Ended December 31, December 31, December 31, December 31, 2007 2006 2007 2006 As Amended As Amended ————- ————- ————- ————- NET SALES $ 1,734,603 $ 1,039,133 $ 5,806,593 $ 4,464,203 OPERATING EXPENSES Cost of sales (exclusive of depreciation and amortization) 1,375,393 851,300 4,623,380 3,617,156 Selling and administrative 53,554 55,099 198,032 191,778 Depreciation 51,330 29,057 143,284 142,985 Amortization 22,327 537 26,151 676 Other operating (income) expense, net 1,897 (2,332) (1,587) 5,687 ————- ————- ————- ————- 1,504,501 933,661 4,989,260 3,958,282 INCOME FROM OPERATIONS 230,102 105,472 817,333 505,921 INCOME FROM 50% OWNED JOINT VENTURES 11,862 12,588 54,079 115,606 ————- ————- ————- ————- INCOME BEFORE OTHER EXPENSES AND INCOME TAXES 241,964 118,060 871,412 621,527 OTHER EXPENSES Interest expense 63,986 11,153 107,738 62,525 Interest income (6,463) (4,114) (17,977) (18,906) Foreign exchange (gain) loss, net (25,467) 2,026 (33,321) 1,135 Writedown of short-term investments 8,879 – 8,879 – Amortization of deferred financing costs 6,106 709 9,282 2,829 Minority interest 8,246 2,713 23,080 2,713 ————- ————- ————- ————- 55,287 12,487 97,681 50,296 INCOME BEFORE INCOME TAXES 186,677 105,573 773,731 571,231 INCOME TAX EXPENSE 45,285 38,891 235,862 196,635 ————- ————- ————- ————- NET INCOME $ 141,392 $ 66,682 $ 537,869 $ 374,596 ————- ————- ————- ————- ————- ————- ————- ————- EARNINGS PER COMMON SHARE – BASIC $ 0.37 $ 0.22 $ 1.66 $ 1.23 EARNINGS PER COMMON SHARE – DILUTED $ 0.37 $ 0.22 $ 1.65 $ 1.23 Effective January 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Staff Position # AUG-AIR-1, “Accounting for Planned Major Maintenance Activities”. This guidance specifically precludes the use of the previously acceptable “accrue in advance” method of accounting for these activities. In compliance with this new guidance, the Company has retroactively adjusted the Condensed Consolidated Statements of Earnings for the three months and year ended December 31, 2006 resulting in a decrease in net income of $2.7 million and $4.1 million, respectively. Additionally, the Company also adjusted the Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Changes in Shareholders’ Equity for the year ended December 31, 2006 resulting in an increase in shareholders’ equity of $1.3 million. GERDAU AMERISTEEL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (US$ in thousands, except earnings per share data) December 31, December 31, 2007 2006 As Amended ————- ————- ASSETS Current Assets Cash and cash equivalents $ 547,362 $ 109,236 Restricted cash – 498 Short-term investments 94,591 123,430 Accounts receivable, net 705,929 460,828 Inventories 1,203,107 820,485 Deferred tax assets 21,779 38,538 Costs and estimated earnings in excess of billings on uncompleted contracts 3,844 2,977 Income taxes receivable 23,986 23,623 Other current assets 25,880 17,428 ————- ————- Total Current Assets 2,626,478 1,597,043 Investments in 50% Owned Joint Ventures 161,168 167,466 Property, Plant and Equipment, net 1,908,617 1,119,458 Goodwill 3,050,906 252,599 Intangibles 598,528 9,216 Deferred Financing Costs 44,544 12,029 Deferred Tax Assets 12,433 12,948 Other Assets 25,846 5,629 ————- ————- TOTAL ASSETS $ 8,428,520 $ 3,176,388 ————- ————- ————- ————- LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Accounts payable and accrued liabilities $ 376,634 $ 317,425 Accrued salaries, wages and employee benefits 169,658 110,237 Accrued interest 40,631 20,909 Income taxes payable 28,143 19,478 Accrued sales, use and property taxes 11,970 8,024 Current portion of long-term environmental reserve 3,704 12,238 Billings in excess of costs and estimated earnings on uncompleted contracts 17,448 15,443 Other current liabilities 25,901 19,629 Current portion of long-term borrowings 15,589 214 ————- ————- Total Current Liabilities 689,678 523,597 Long-term Borrowings, Less Current Portion 3,055,431 431,441 Accrued Benefit Obligations 252,422 238,503 Long-term Environmental Reserve, Less Current Portion 11,830 9,993 Other Liabilities 78,401 38,082 Deferred Tax Liabilities 433,822 53,733 Minority Interest 42,321 27,581 ————- ————- TOTAL LIABILITIES 4,563,905 1,322,930 ————- ————- Contingencies, commitments and guarantees Shareholders’ Equity Capital stock 2,547,123 1,016,287 Retained earnings 1,253,196 828,998 Accumulated other comprehensive income 64,296 8,173 ————- ————- TOTAL SHAREHOLDERS’ EQUITY 3,864,615 1,853,458 ————- ————- TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 8,428,520 $ 3,176,388 ————- ————- ————- ————- GERDAU AMERISTEEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (US$ in thousands, except earnings per share data) (Unaudited) Three Months Ended Year Ended December 31, December 31, December 31, December 31, 2007 2006 2007 2006 As Amended As Amended ————- ————- ————- ————- OPERATING ACTIVITIES Net income $ 141,392 $ 66,682 $ 537,869 $ 374,596 Adjustment to reconcile net income to net cash provided by operating activities: Minority interest 8,246 2,713 23,080 2,713 Depreciation 51,331 29,057 143,284 142,985 Amortization 22,326 537 26,151 676 Amortization of deferred financing costs 6,106 709 9,282 2,829 Write off unamortized fair value market adjustment – – – 5,604 Deferred income taxes 21,979 (12,354) 20,988 (309) Loss (gain) on disposition of property, plant and equipment 388 – 3,295 (8,914) Income from 50% owned joint ventures (11,862) (12,588) (54,079) (115,606) Distributions from 50% owned joint ventures 10,000 10,000 62,078 101,576 Facilities closure expenses 3,178 – 3,178 9,400 Compensation cost from share-based awards 6,663 3,800 21,522 34,371 Realized loss on writedown of short-term investments 8,879 – 8,879 – Excess tax benefits from share-based payment arrangements (35) (537) (1,159) (1,998) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 119,210 99,399 (30,037) 23,483 Inventories 13,544 (24,004) (9,710) (10,594) Other assets (19,541) (22,184) (26,937) (21,551) Liabilities (24,465) (21,743) 26,701 (33,652) ————- ————- ————- ————- NET CASH PROVIDED BY OPERATING ACTIVITIES 357,339 119,487 764,385 505,609 INVESTING ACTIVITIES Additions to property, plant and equipment (40,136) (63,956) (173,786) (212,663) Proceeds received from the disposition of property, plant and equipment 84 – 1,371 14,110 Acquisitions (100,973) (104,500) (4,354,735) (214,938) Opening cash from acquisitions 157 (437) 528,980 21,934 Change in restricted cash – (6) 498 (25) Purchases of short-term investments – (321,855) (592,240) (1,531,535) Sales of short-term investments 749 371,075 612,200 1,408,105 ————- ————- ————- ————- NET CASH USED IN INVESTING ACTIVITIES (140,119) (119,679) (3,977,712) (515,012) FINANCING ACTIVITIES Proceeds from issuance of new debt 16,689 – 4,087,410 – Payments on term borrowings (1,300,038) (2,224) (1,450,264) (6,637) Additions to deferred financing costs (1,399) – (40,725) (404) Retirement of bonds (115) – (341,759) (88,493) Retirement of convertible debentures – – – (111,990) Cash dividends (8,640) (6,101) (109,366) (91,387) Distributions to subsidiary’s minority shareholder (783) – (8,340) – Proceeds from issuance of employee stock purchases 42 262 1,258 1,290 Proceeds from issuance of common stock, net 1,526,785 – 1,526,785 – Excess tax benefits from share-based payment arrangements 35 537 1,159 1,998 ————- ————- ————- ————- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 232,576 (7,526) 3,666,158 (295,623) Effect of exchange rate changes on cash and cash equivalents (16,278) (300) (14,705) 3 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 433,518 (8,018) 438,126 (305,023) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 113,844 117,254 109,236 414,259 ————- ————- ————- ————- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 547,362 $ 109,236 $ 547,362 $ 109,236 ————- ————- ————- ————- ————- ————- ————- ————-
Gerdau Ameristeel Corporation
CONTACT: Mario Longhi, President and Chief Executive Officer, GerdauAmeristeel, (813) 207-2346, mlonghi@gerdauameristeel.com; Barbara R. Smith,Vice President and Chief Financial Officer, Gerdau Ameristeel, (813) 319-4324,basmith@gerdauameristeel.com