Gerdau Ameristeel Reports 3rd Quarter Results
11/07/2007 - Gerdau Ameristeel reports net income of $123.8 million on revenues of $1.4 billion for the third quarter, and net income of $396.5 million on revenues of $4.1 billion for the nine months ended September 30, 2007.
Gerdau Ameristeel Corp. reported net income of $123.8 million on revenues of $1.4 billion for the third quarter, and net income of $396.5 million on revenues of $4.1 billion for the nine months ended September 30, 2007.
Third Quarter Results—The $123.8-million net income ($0.40 per share fully diluted) reflects a 35% increase in comparison to net income of $91.4 million ($0.30 per share fully diluted) for the three months ended September 30, 2006.
Revenues of $1.4 billion reflect a 20% increase from revenues of $1.2 billion for the three months ended September 30, 2006. Finished steel shipments increased to 1.8 million tons, an increase of 123,000 tons from the three months ended September 30, 2006, primarily as a result of the acquisitions of Chaparral Steel and Pacific Coast Steel. Average mill-finished steel selling prices increased 11% over the level in this same period in 2006.
Metal spread (the difference between mill selling prices and scrap raw material costs) was $440 per ton, and an increase of $50 per ton from the same period in 2006. EBITDA was $253.8 million, which compares to EBITDA of $211.4 million for the three months ended September 30, 2006.
Selling and administrative expense for the period included a $2.0 million non-cash pretax expense reversal to mark to market outstanding stock appreciation rights and expenses associated with other executive compensation agreements. This compares to an $0.6 million non-cash pretax expense reversal for the three months ended September 30, 2006.
Nine Month Results—The $396.5 million net income ($1.29 per share fully diluted) reflects an increase of 29% compared to net income of $307.9 million ($1.01 per share fully diluted) for the nine months ended September 30, 2006.
Revenues of $4.1 billion compare to revenues of $3.4 billion for the nine months ended September 30, 2006. Finished steel shipments increased to 5.4 million tons, an increase of 309,000 tons from the nine months ended September 30, 2006, primarily as a result of the acquisitions of Chaparral Steel, Sheffield Steel, and Pacific Coast Steel. Average mill finished steel selling prices increased 11% over those in this same period in 2006.
Metal spread (the difference between mill selling prices and scrap raw material costs) was was $409 per ton, an increase of $35 per ton from the same period in 2006. EBITDA was $742.9 million, which compares to EBITDA of $607.0 million for the nine months ended September 30, 2006.
Selling and administrative expense for the period included a $16.0-million non-cash pretax expense to mark to market outstanding stock appreciation rights and expenses associated with other executive compensation agreements. This compares to a $30.6-million non-cash pretax expense for the nine months ended September 30, 2006.
Other Third-Quarter News—On September 14, 2007, the company completed its $4.2-billion acquisition of Chaparral Steel Co. , broadening Gerdau Ameristeel's product portfolio and giving it a wide range of structural steel products. Chaparral produces structural steel products and steel bar products from its two mini-mills in Midlothian, Texas, and Petersburg, Va. The acquisition was financed with credit facilities totaling $3.9 billion. As a result of Chaparral's operations only being included subsequent to the acquisition date and fair value purchase accounting adjustments required under US GAAP, the Chaparral assets did not significantly contribute to the company’s third-quarter operating income.
On November 1, 2007, the company filed a final short form prospectus with Canadian securities regulatory authorities and the U.S. Securities and Exchange Commission regarding an offering of 110 million of its common shares. Gerdau SA, which currently owns approximately 66.5% of the company’s outstanding common shares, has agreed to purchase approximately 73 million common shares in the offering. Approximately 37 million common shares will be distributed to the public through an underwriting syndicate. The offering is expected to close on November 7, 2007.
Net proceeds of the offering (approximately $1.3 billion) will be used to partially repay the loans the company incurred for its acquisition of Chaparral. The company has also granted the underwriters an option to purchase up to an additional 5,535,750 common shares at the public offering price (as adjusted, if applicable, for any dividends declared and payable on the common shares prior to exercise of the option), less underwriting commission within 30 days following the closing of the offering. Gerdau SA has agreed to purchase, within two days after the exercise of the overallotment option, a number of additional common shares to maintain its approximate 66.5% ownership interest, at the public offering price (as adjusted, if applicable, for any dividends declared and payable on the company common shares prior to exercise of the option).
On November 5, 2007, the Board of Directors approved a quarterly cash dividend of $0.02 (two US$ cents) per common share, payable December 12, 2007 to shareholders of record at the close of business on November 27,
2007.
CEO Comments—“Our operations have performed well during 2007 and earnings through the first nine months of 2007 have already surpassed our full year earnings from 2006,” said Mario Longhi, President and CEO of Gerdau Ameristeel. “The slowdown in the North American residential construction segment has little direct impact to our demand as we primarily service the infrastructure and non-residential construction industry, which remains strong.
“We are focused on executing on our integration strategy for Chaparral, which to date has proceeded well,” he continued. “Employees from both organizations have been fully engaged in this process, sharing best practices to seek to ensure that synergy opportunities are realized.
“With the expected completion of our equity offering generating approximately $1.3 billion of cash, prior to any exercise of the overallotment option, to reduce our debt levels, we believe that our capital structure will be well positioned for the coming years,” concluded Longhi.
Gerdau Ameristeel is the second-largest mini-mill steel producer in North America with an annual manufacturing capacity of approximately 11.7 million tons of mill finished steel products. Through its vertically
integrated network of 19 minimills (including one 50%-owned joint venture minimill), 19 scrap recycling facilities and 62 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 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.
