Gerdau Ameristeel Reports 4th Quarter, Year-End 2008 Results
02/23/2009 - Gerdau Ameristeel reports a net loss of $1.3 billion on net sales of $1.4 billion for the three months, and a net loss of $542 million on net sales of $8.5 billion for the year ended December 31, 2007.
Gerdau Ameristeel Corp. reported a net loss of $1.3 billion on net sales of $1.4 billion for the three months, and a net loss of $542 million on net sales of $8.5 billion for the year ended December 31, 2007.
Fourth Quarter Results—The $1.3 billion net loss ($2.97 per share fully diluted) compares to net income of $141.4 million ($0.37 per share fully diluted) for the year-ago fourth quarter.
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Fourth quarter results include a $1.2-billion non-cash goodwill impairment charge. The value of the charge represents the company’s best estimate at the time year-end results were filed; the amount has not yet been finalized due to complexities involved in determining the implied fair value of the goodwill in each reporting unit.
Although the charge may be adjusted once the analysis has been completed, at $1.2 billion, the impairment charge has a $2.78 per share impact on earnings per share of for the three months and year ended December 31, 2008. No associated tax benefit was recorded for the impairment charge, and the company's availability under its senior secured credit facilities was not affected by the charge.
Fourth quarter results also included a $38.7-million pre-tax charge to write down the value of some of the company's inventory to its current market value. This also includes the company's 50% portion of Gallatin Steel’s approximately $50-million pre-tax charge to write its inventory down to market value.
In addition to goodwill impairment and inventory write-down charges, the company also recorded a $13.3-million charge in the fourth quarter ($60 million for the year) to write down the carrying value of investments (comprising variable rate debt obligations, known as auction rate securities). The investments were written down to their fair market value of $33.2 million, which compares to the original investment of $104.2 million for these securities. The investments write-down’s impact to earnings per share was $0.03 for the fourth quarter and $0.14 for the year. No associated tax benefit was recorded for the write-down. Excluding the goodwill impairment charge and the charge to write down the carrying value of investments, the Non-GAAP Adjusted Net Loss was $70.8 million ($0.16 per share fully diluted) and the Non-GAAP Adjusted Net Income was $718.0 million ($1.67 per share fully diluted) for the three months and year ended December 31, 2008, respectively. This compares to Non-GAAP Adjusted Net Income of $150.3 million ($0.39 per share fully diluted) for the three months and $546.7 million ($1.68 per share fully diluted) for the year ended December 31, 2007.
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EBITDA was $19.4 million, which compares to EBITDA of $313.8 million for the year-ago quarter.
Net sales of $1.4 billion reflect a 17.6% decrease from $1.7 billion for the year-ago fourth quarter. Finished steel shipments of 1.3 million tons reflect an 829,000-ton decrease from the year-ago quarter, primarily as a result of the current global economic conditions. Average mill-finished steel selling prices increased 31.1% over the level in this same period in 2007.
The company was forced to reduce production in the fourth quarter to meet the lower demand that resulted from the global liquidity crisis. Operating rates in the fourth quarter were approximately 40% of the operating rates experienced in the first nine months of the year.
Metal spread (the difference between mill selling prices and scrap raw material costs) was $636 per ton, an increase of $180 per ton from the same period in 2007. Metal spreads increased significantly during the first nine months of 2008 in response to significant raw material price inflation and to strong global demand for long steel products, before retracting slightly in the fourth quarter of 2008.
During the quarter, the company completed the acquisitions of two scrap processors: Metro Recycling in Ont., Canada, and Sand Springs Metal Processors in Oklahoma.
Full Year Results—The $542.0-million net loss ($1.25 per share fully diluted) compares to net income of $537.9 million ($1.65 per share fully diluted) for the previous year (2007). Current year results include the described goodwill impairment and write-down charges.
EBITDA was $1.5 billion, which compared to EBITDA of $1.0 billion for the previous year. This represents a 50.0% increase over 2007 results and a record amount for the company.
Net sales of $8.5 billion reflect a 46.6% increase vs. $5.8 billion for the prior year. Finished steel shipments of 8.3 million tons reflect a 769,000-ton increase vs. the prior year, primarily as a result of the full year inclusion of the Chaparral Steel operations, which were acquired in September 2007. Additionally, average mill finished steel selling prices increased 36.4% over those in 2007.
Metal spread (the difference between mill selling prices and scrap raw material costs) was $544 per ton, an increase of $123 per ton from 2007.
At December 31, 2008, the company had $688.4 million of cash and short-term investments. In addition, the company had approximately $759.6 million available under secured credit facilities which resulted in a total liquidity position of approximately $1.4 billion at December 31, 2008.
CEO Comments—“We faced two very different periods during 2008,” commented Mario Longhi, President and CEO of Gerdau Ameristeel. “During the first nine months of the year we delivered EBITDA of $1.5 billion, while in the challenging slowdown of the world economy during the last quarter of the year, EBITDA decreased to $19.4 million.
“During this difficult time, we took decisive action to position ourselves for the current environment, which included aggressive cost reductions. During the fourth quarter, our shipment rates exceeded our production rates which resulted in us reducing our investment in working capital and in the generation of $345 million of cash during this period, to end the year with good liquidity and a strong balance sheet.
Commenting on outlook, Longhi added, “The outlook for 2009 still remains very uncertain, however we remain focused on our core businesses, servicing our customers, enhancing our productivity and adjusting our cost basis as we strive to deliver returns to our shareholders during these difficult times.”
