Commercial Metals Company Announces Restructuring Actions
10/10/2011 - Commercial Metals has announced a number of restructuring actions, including the closure or sale of its CMC Sisak mill in Croatia, additional workforce reductions, closure of five rebar fabricating locations, and rationalization of eight construction services locations.
Commercial Metals Co. has decided to exit the CMC Sisak mill (CMCS) in Croatia by way of a sale and/or closure. The company said it plans to close out the existing order book and expects the steel pipe manufacturing operation to wind down over the next several months.
“Despite focused efforts and substantial progress over the past several quarters to stabilize and improve the operating efficiency of the Croatia mill, we have determined that achieving sustained profitability would take considerable additional time and investment in a product line which is not considered a core business,” commented Joe Alvarado, President and CEO. “This was a difficult decision that came after careful analysis and thorough review of the marketplace and our production capabilities. By exiting this business, we believe the capital and management attention consumed by our Croatian operations will be better deployed in our other businesses.”
Closure of the Sisak facility will result in a workforce reduction of approximately 1130 people.
The company also announced further reductions to its global workforce by approximately 350 people. Five rebar fabricating locations will be closed as part of the workforce reduction, four domestic and one international location, with all remaining production to be moved to other facilities. The company also is rationalizing eight construction services (CRP) locations, which either have been closed or are in the process of being sold.
“We continue to review our product lines, geographic dispersion, and vertical integration taking into consideration the current economic environment in the various markets that we serve in order to determine the best allocation of resources for the company,” continued Joe Alvarado. “We remain committed to our strategy of vertical integration, upstream in scrap recycling and downstream in fabrication. We also remain committed to serving our customers and believe these actions will allow us to do so in a more effective manner.
“We understand the impact that these decisions will have on the lives of our employees and our communities, but unfortunately market conditions have necessitated that these actions be taken at this time,” added Alvarado.
The company is currently estimating the related pre-tax charges to be recorded in fiscal 2011 may range from $135 million to $165 million, although the actual amount will depend on a number of factors including valuations upon possible sale of the various businesses as a going concern or by individual property, plant and equipment. Estimated pre-tax closure costs to be incurred in 2012, excluding operating losses incurred in running the CMCS mill to close out orders, are in a range from $25 million to $40 million.
Over $120 million of the restructuring costs in 2011 are expected to be non-cash costs as these charges relate primarily to impairments. Restructuring costs in 2012 are expected to be cash costs for severance and other closure activities.
The company expects that any losses resulting from the plant closure or sale will result in reductions in cash taxes in 2012 and 2013. Management also estimates that liquidation of working capital and the reduction of income taxes will make the CMCS closure cash-flow positive for Commercial Metals Company.
The board of directors has also declared a quarterly cash dividend of 12 cents per share on common stock to stockholders of record on October 18, 2011. The dividend will be paid on November 1, 2011. The board further decided to align future dividend declaration dates to coincide with quarterly earnings release dates.
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.
