Gerdau Ameristeel Announces Record Third Quarter 2008 Earnings
TAMPA, FL, Nov. 5 /PRNewswire-FirstCall/ — Gerdau Ameristeel Corporation (NYSE: GNA; TSX: GNA) today reported net income of $316.9 million ($0.73 per share fully diluted) for the three months ended September 30, 2008, a 156.0% increase in comparison to net income of $123.8 million ($0.40 per share fully diluted) for the three months ended September 30, 2007.
For the nine months ended September 30, 2008, net income was $742.0 million ($1.71 per share fully diluted) an increase of 87.1% compared to net income of $396.5 million ($1.29 per share fully diluted) for the nine months ended September 30, 2007.
Net sales for the three months ended September 30, 2008 increased 78.6% to $2.5 billion from $1.4 billion for the three months ended September 30, 2007. For the three months ended September 30, 2008, finished steel shipments increased to 2.1 million tons, an increase of 305 thousand tons from the three months ended September 30, 2007, primarily as a result of the acquisition of Chaparral Steel in September 2007. Additionally, average mill finished steel selling prices for the three months ended September 30, 2008 increased 60.1% over the level in this same period in 2007 and 19.6% over second quarter 2008 levels.
Net sales for the nine months ended September 30, 2008 increased 73.2% to $7.1 billion from $4.1 billion for the nine months ended September 30, 2007. For the nine months ended September 30, 2008, finished steel shipments increased to 7.0 million tons, an increase of 1.6 million tons from the nine months ended September 30, 2007, primarily as a result of the acquisition of Chaparral Steel. Additionally, average mill finished steel selling prices for the nine months ended September 30, 2008 increased 39.4% over the level in this same period in 2007.
For the three months ended September 30, 2008, metal spread, the difference between mill selling prices and scrap raw material costs, was $662 per ton, an increase of $222 per ton from the same period in 2007. The increase is partially attributable to the higher margin structural products from the addition of the Chaparral products. For the nine months ended September 30, 2008, metal spread was $530 per ton, an increase of $121 per ton from the same period in the prior year. Partially offsetting this increase in metal spread has been a significant cost increase in alloys, energy and other raw material consumables used in our production process.
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) was $581.4 million for the three months ended September 30, 2008, compared to EBITDA of $250.2 million for the three months ended September 30, 2007. For the nine months ended September 30, 2008, EBITDA was $1.5 billion compared to $735.1 million for the nine months ended September 30, 2007.
In prior years, the Company purchased investments that are comprised of variable rate debt obligations, known as auction rate securities. During the three and nine months ended September 30, 2008, the Company recorded a $7.0 million and $46.7 million charge to write down the carrying value of these investments to their fair market value of $47.2 million. The original investment in these securities was approximately $104.2 million. The impact to earnings per share of this writedown for the three and nine months ended September 30, 2008 was approximately $0.02 and $0.11 per share, respectively. The effective tax rate was unfavorably impacted by this writedown as no associated tax benefit was recorded for this item.
Included in selling and administrative expense for the three and nine months ended September 30, 2008 is a non-cash pretax expense reversal of $9.8 million and a non-cash pretax expense of $6.0 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 reversal of $2.2 million and a non-cash pretax expense of $16.0 million, respectively for the three and nine months ended September 30, 2007.
On July 14, 2008, the Company acquired substantially all of the assets of Hearon Steel Co., a rebar fabricator and epoxy coater with locations in Muskogee, Tulsa and Oklahoma City, Oklahoma. On October 27, 2008, the Company acquired Metro Recycling, a scrap processor with two locations in Guelph and one in Mississauga, Ontario, Canada. On October 31, 2008, the Company acquired the operating assets of Sand Springs Metal Processors, a scrap processor located in Sand Springs, Oklahoma.
On November 4, 2008, the Board of Directors approved a quarterly cash dividend of $0.02 (two US$ cents) per common share, payable December 8, 2008 to shareholders of record at the close of business on November 20, 2008.
CEO Comments Mario Longhi, President and CEO of Gerdau Ameristeel, commented:
“The results from the third quarter of 2008 represent our fourth successive quarter in which we have delivered increased net earnings to our shareholders from our balanced long product portfolio of rebar, merchant, structural and wire rod products. Our recent acquisitions further strengthened both our downstream rebar fabrication business, which represents an outlet for a significant portion of our mill rebar production, and our upstream raw materials scrap procurement group, which has increased our captive scrap sourcing to approximately 40%. We will use our proven methodologies to integrate these operations into our existing business, in an effort to capture the synergies that these opportunities present.
We expect shipment volume in the fourth quarter to be reduced from the levels of the third quarter. As we enter this period of economic uncertainty we will remain focused on driving productivity and cost improvement initiatives as we have done over the past several years. Our balance sheet is strong with good liquidity and with no significant scheduled debt repayments until 2011. With decreasing scrap costs and shipment volumes, we anticipate a significant reduction in the investment of working capital as we match production to customer demand, which should further enhance our liquidity position in the fourth quarter.”
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; increases in the cost of steel scrap, energy and other raw materials; steel imports and trade regulations; a change in China’s steelmaking capacity or slowdown in China’s steel consumption; the Company’s participation in the consolidation of the steel industry; the substantial capital investment and similar expenditures required in the Company’s business; unexpected equipment failures and plant interruptions or outages; the Company’s level of indebtedness; 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; the Company’s ability to fund its pension plans; the ability to renegotiate collective bargaining agreements and avoid labor disruptions; currency exchange rate fluctuations; actions or potential actions taken by the Company’s principal stockholder, Gerdau S.A., the liquidity of the Company’s long-term investments, including investments in auction rate securities, and the Company’s reliance on its 50%-owned 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 third quarter conference call on Wednesday, November 5, 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 annual manufacturing capacity of approximately 12 million tons of mill finished steel products. Through its vertically integrated network of 19ÂÂ mini-mills (including one 50% owned joint venture mini-mill), 23ÂÂ scrap recycling facilities and 66 downstream operations, Gerdau Ameristeel serves customers throughout the United States and Canada. The Company’s products are generally sold to steel service centers, steel producers, 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 majority shareholder is the Gerdau Group, a 100+ year old steel company, the largest producer of long steel products in the Americas and the world leader in specialty long steel for the automotive industry. Gerdau Ameristeel’s common shares are traded on the New York Stock Exchange, and the Toronto Stock Exchange under the ticker symbol GNA.
GERDAU AMERISTEEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (US$ in thousands, except earnings per share data) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ————————– ————————– 2008 2007 2008 2007 ———— ———— ———— ———— NET SALES $ 2,514,412 $ 1,397,176 $ 7,091,884 $ 4,071,990 OPERATING EXPENSES Cost of sales (exclusive of depreciation and amortization) 1,878,579 1,127,924 5,459,398 3,247,987 Selling and administrative 57,977 41,667 187,382 144,478 Depreciation 55,073 34,810 159,577 91,953 Amortization of intangibles 26,256 3,116 76,676 3,825 Other operating income, net (2,164) (2,228) (3,054) (3,484) ———— ———— ———— ———— 2,015,721 1,205,289 5,879,979 3,484,759 INCOME FROM OPERATIONS 498,691 191,887 1,211,905 587,231 INCOME FROM 50% OWNED JOINT VENTURES 24,060 10,188 84,167 42,217 ———— ———— ———— ———— INCOME BEFORE OTHER EXPENSES AND INCOME TAXES 522,751 202,075 1,296,072 629,448 OTHER EXPENSES Interest expense 38,024 24,485 125,427 43,753 Interest income (2,856) (6,159) (12,157) (11,515) Foreign exchange (gain) loss, net (4,127) (3,585) (8,456) (7,854) Amortization of deferred financing costs 2,779 1,800 8,161 3,176 Writedown of investments 7,030 – 46,701 – Minority interest 1,685 4,948 9,623 14,834 ———— ———— ———— ———— 42,535 21,489 169,299 42,394 INCOME BEFORE INCOME TAXES 480,216 180,586 1,126,773 587,054 INCOME TAX EXPENSE 163,318 56,772 384,760 190,577 ———— ———— ———— ———— NET INCOME $ 316,898 $ 123,814 $ 742,013 $ 396,477 ———— ———— ———— ———— ———— ———— ———— ———— EARNINGS PER COMMON SHARE – BASIC $ 0.73 $ 0.41 $ 1.72 $ 1.30 EARNINGS PER COMMON SHARE – DILUTED $ 0.73 $ 0.40 $ 1.71 $ 1.29 GERDAU AMERISTEEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (US$ in thousands) (Unaudited) September 30, December 31, 2008 2007 ————- ————- ASSETS Current Assets Cash and cash equivalents $ 343,201 $ 547,362 Short-term investments – 94,591 Accounts receivable, net 1,096,305 705,929 Inventories 1,715,099 1,203,107 Deferred tax assets 28,170 21,779 Costs and estimated earnings in excess of billings on uncompleted contracts 16,209 3,844 Income taxes receivable 3,273 23,986 Other current assets 36,923 25,880 ————- ————- Total Current Assets 3,239,180 2,626,478 Investments in 50% Owned Joint Ventures 202,656 161,168 Long-Term investments 47,190 – Property, Plant and Equipment, net 1,843,185 1,908,617 Goodwill 3,209,891 3,050,906 Intangibles 541,775 598,528 Deferred Financing Costs 38,047 44,544 Deferred Tax Assets 254 12,433 Other Assets 51,623 25,846 ————- ————- TOTAL ASSETS $ 9,173,801 $ 8,428,520 ————- ————- ————- ————- LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities Accounts payable and accrued liabilities $ 529,306 $ 376,634 Accrued salaries, wages and employee benefits 154,704 169,658 Accrued interest 16,393 40,631 Income taxes payable 63,908 28,143 Accrued sales, use and property taxes 23,283 11,970 Current portion of long-term environmental reserve 6,138 3,704 Billings in excess of costs and estimated earnings on uncompleted contracts 65,569 17,448 Other current liabilities 23,322 25,901 Current portion of long-term borrowings 15,496 15,589 ————- ————- Total Current Liabilities 898,119 689,678 Long-term Borrowings, Less Current Portion 3,054,284 3,055,431 Accrued Benefit Obligations 231,418 252,422 Long-term Environmental Reserve, Less Current Portion 10,333 11,830 Other Liabilities 72,153 78,401 Deferred Tax Liabilities 430,255 433,822 Minority Interest 36,202 42,321 ————- ————- TOTAL LIABILITIES 4,732,764 4,563,905 ————- ————- Contingencies, commitments and guarantees Shareholders’ Equity Capital stock 2,552,027 2,547,123 Retained earnings 1,861,253 1,253,196 Accumulated other comprehensive income 27,757 64,296 ————- ————- TOTAL SHAREHOLDERS’ EQUITY 4,441,037 3,864,615 ————- ————- TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 9,173,801 $ 8,428,520 ————- ————- ————- ————- GERDAU AMERISTEEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (US$ in thousands) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ————————– ————————– 2008 2007 2008 2007 ———— ———— ———— ———— OPERATING ACTIVITIES Net income $ 316,898 $ 123,814 $ 742,013 $ 396,477 Adjustment to reconcile net income to net cash provided by operating activities: Minority interest 1,685 4,948 9,623 14,834 Depreciation 55,073 34,810 159,577 91,953 Amortization of intangibles 26,256 3,116 76,676 3,825 Amortization of deferred financing costs 2,779 1,800 8,161 3,176 Deferred income taxes (3,105) (11,247) (19,073) (991) Loss on disposition of property, plant and equipment 307 2,616 38 2,907 Income from 50% owned joint ventures (24,060) (10,188) (84,167) (42,217) Distributions from 50% owned joint ventures 1,425 20,424 41,829 52,078 Compensation cost from share-based awards (9,822) (2,146) 5,977 14,859 Excess tax benefits from share-based payment arrangements (38) (135) (1,171) (1,124) Realized loss on writedown of investments 7,030 – 46,701 – Facility closure expenses 115 – 1,105 – Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 38,393 15,021 (319,298) (149,247) Inventories (248,762) (13,932) (520,720) (23,254) Other assets 397 (30,239) (2,688) (7,396) Liabilities (56,615) 70,093 126,361 52,666 ———— ———— ———— ———— NET CASH PROVIDED BY OPERATING ACTIVITIES 107,956 208,755 270,944 408,546 INVESTING ACTIVITIES Purchases of property, plant and equipment (47,339) (40,864) (113,049) (133,650) Proceeds from disposition of property, plant and equipment 266 122 1,880 1,287 Acquisitions (14,157) (4,248,774) (217,657) (4,253,762) Opening cash from acquisitions – 528,823 – 528,823 Change in restricted cash – 504 – 498 Purchases of short- term investments – (130,581) – (592,239) Proceeds from sales of short-term investments – 153,820 700 611,450 ———— ———— ———— ———— NET CASH USED IN INVESTING ACTIVITIES (61,230) (3,736,950) (328,126) (3,837,593) FINANCING ACTIVITIES Proceeds from issuance of debt – 4,051,213 499 4,070,721 Payments on term borrowings (29) (150,072) (4,288) (150,226) Payments of deferred financing costs (1,578) (40,305) (1,686) (40,826) Retirement of bonds – (341,644) – (341,644) Cash dividends (8,646) (6,109) (133,956) (100,726) Distributions to subsidiary’s minority shareholder – (2,392) (3,065) (7,557) Proceeds from exercise of employee stock options 20 599 1,144 1,216 Excess tax benefits from share-based payment arrangements 38 135 1,171 1,124 ———— ———— ———— ———— NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (10,195) 3,511,425 (140,181) 3,432,082 Effect of exchange rate changes on cash and cash equivalents (5,070) 1,009 (6,798) 1,573 ———— ———— ———— ———— INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 31,461 (15,761) (204,161) 4,608 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 311,740 129,605 547,362 109,236 ———— ———— ———— ———— CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 343,201 $ 113,844 $ 343,201 $ 113,844 ———— ———— ———— ———— ———— ———— ———— ———— Supplemental Information: Cash payments for income taxes $ 136,851 $ 60,519 $ 331,896 $ 158,482 Cash payments for interest $ 73,963 $ 21,779 $ 152,076 $ 43,452
EBITDA (EBITDA is calculated by adding earnings before interest and other expense on debt, taxes, depreciation, amortization, writedown of short-term investments, foreign exchange gain/loss, net, minority interest and cash distributions from 50% owned joint ventures, and deducting interest income and earnings 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 —————————- September 30, September 30, 2008 2007 ————- ————- ($000s) Net income $ 316,898 $ 123,814 Income tax expense 163,318 56,772 Interest and other expense on debt 38,024 24,485 Interest income (2,856) (6,159) Depreciation 55,073 34,810 Amortization of intangibles 26,256 3,116 Amortization of deferred financings costs 2,779 1,800 Earnings from 50% owned joint ventures (24,060) (10,188) Cash distribution from 50% owned joint ventures 1,425 20,424 Foreign exchange (gain) loss, net (4,127) (3,585) Writedown of investments 7,030 – Minority interest 1,685 4,948 ————- ————- EBITDA $ 581,445 $ 250,237 ————- ————- ————- ————- For the Nine Months Ended – Unaudited —————————- September 30, September 30, 2008 2007 ————- ————- ($000s) Net income $ 742,013 $ 396,477 Income tax expense 384,760 190,577 Interest and other expense on debt 125,427 43,753 Interest income (12,157) (11,515) Depreciation 159,577 91,953 Amortization of intangibles 76,676 3,825 Amortization of deferred financings costs 8,161 3,176 Earnings from 50% owned joint ventures (84,167) (42,217) Cash distribution from 50% owned joint ventures 41,829 52,078 Foreign exchange (gain) loss, net (8,456) (7,854) Writedown of investments 46,701 – Minority interest 9,623 14,834 ————- ————- EBITDA $ 1,489,987 $ 735,087 ————- ————- ————- ————- SUPPLEMENTAL OPERATING AND FINANCIAL INFORMATION – UNAUDITED THE INFORMATION IN THIS TABLE EXCLUDES 50% OWNED JOINT VENTURES For the Three Months Ended September 30, 2008 September 30, 2007 ————————– ————————– Tons Tons ———– ———– Production Melt Shops 2,395,926 1,766,667 Rolling Mills 2,268,206 1,765,185 Tons % Tons % ———– —— ———– —— Finished Steel Shipments Rebar 355,733 17% 387,893 22% Merchant/Special Sections/ Structurals 1,201,069 57% 856,760 48% Rod 145,458 7% 182,659 10% Fabricated Steel 395,674 19% 366,082 20% ———– —— ———– —— Total Shipments 2,097,934 100% 1,793,394 100% $/Ton $/Ton ———– ———– Selling Prices Mill external shipments $ 1,055 $ 659 Fabricated steel shipments 1,254 891 Scrap Charged 393 219 Metal Spread (Selling price less scrap) Mill external shipments 662 440 Fabricated steel shipments 861 672 Mill manufacturing cost 350 273 Operating Income 238 107 EBITDA 277 140 SUPPLEMENTAL OPERATING AND FINANCIAL INFORMATION – UNAUDITED THE INFORMATION IN THIS TABLE EXCLUDES 50% OWNED JOINT VENTURES For the Nine Months Ended September 30, 2008 September 30, 2007 ————————– ————————– Tons Tons ———– ———– Production Melt Shops 7,327,188 5,293,628 Rolling Mills 6,977,192 5,248,041 Tons % Tons % ———– —— ———– —— Finished Steel Shipments Rebar 1,350,674 19% 1,261,346 23% Merchant/Special Sections/ Structurals 3,976,194 57% 2,487,227 47% Rod 538,185 8% 561,254 10% Fabricated Steel 1,111,570 16% 1,068,994 20% ———– —— ———– —— Total Shipments 6,976,623 100% 5,378,821 100% $/Ton $/Ton ———– ———– Selling Prices Mill external shipments $ 881 $ 632 Fabricated steel shipments 1,114 877 Scrap Charged 351 223 Metal Spread (Selling price less scrap) Mill external shipments 530 409 Fabricated steel shipments 763 654 Mill manufacturing cost 329 259 Operating Income 174 109 EBITDA 214 137 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 – Nine Months Ended – Unaudited Unaudited September 30, September 30, September 30, September 30, 2008 2007 2008 2007 ————- ————- ————- ————- Tons Shipped 169,870 201,908 603,723 602,709 Operating Income $ 24,528 $ 10,403 $ 84,977 $ 43,504 Net Income 24,057 10,188 84,158 42,217 EBITDA 27,323 13,289 93,399 51,970 $/Ton $/Ton $/Ton $/Ton —– —– —– —– Average Selling Price $ 1,055 $ 526 $ 838 $ 537 Scrap Charged 604 267 456 263 Metal Spread 451 259 382 274 Operating Income 144 52 141 72 EBITDA 161 66 155 86
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