commercial metals 4thQ 2008

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commercial metals 4thQ 2008

  1. 1. CMC – Business Model Vertical Integration Product Diversification Global Geographic Dispersion 4th Quarter 2008 4th Quarter 2008 Current Market Conditions & Outlook Current Market Conditions & Outlook Global Liquidity Crisis has Paralyzed the Steel Markets Up and Down Supply Chain Watchword is Inventory Reduction and JIT Vicious Downward Spiral of Confidence Insufficient Funding Leads to Order Delays or Lack of Demand Leaves no Viable Pricing Postponements and Inevitable Claims Mechanism for Ferrous Scrap Campaigns Talk Down the Economy; Psychological No Price Will Clear the Market, so Prices Recession Sets in Freefall Supply (Inventories) Exceed Apparent (or Willing) Demand Scrap Backup at Dealer Level Including Reduction in Material Purchasing Leads to Lower Prices Nonferrous Customers Holdback Looking for the Bottom Ferrous Export Market Weak Supply Exceeds Current Orders; Prices Lower Cycle Repeats Itself 4 Quarter 2008 th 4th Quarter 2008 1
  2. 2. Current Market Conditions & Outlook North America Restricting Recycling Flows Will Bring Lower Market Conditions Difficult for Earnings Projection Prices, Lower Utilization Expected 1st Quarter Earnings Range - $0.35 to $0.45 Mill Backlogs in Usual 40-50 Day Range, But Rapidly Falling Prices and Inventory Levels will Result in Heavily Weighted Towards Highway Work Significant LIFO Income; Anticipating Minimum $50 Million Service Centers Living Hand to Mouth; Merchant Pre-Tax for Quarter Tons Off Material Flow Between CMC Vertical Units Will be Our Mills Will Take Downtime for Inventory Control Emphasized Fabrication Will do Better in Falling Market, But Recycling Scaling Back Flow into Plants Backlog is not Being Replaced as Quickly as Americas Mills Volumes Down, But Margin Holds Shipments Americas Fab Find Relief From Margin Compression Many Small Jobs (200-700 tons) Being Bid, But Polish Results Drop as Finished Good Prices Drop Faster Larger Jobs Scarce than Scrap; Billet Exports End International Marketing OK; Working Off Backlog 4th Quarter 2008 4th Quarter 2008 North America Europe / Middle East Strong U.S. Dollar and Declining Freight Rates Bank Contagion Roils Region Do Not Attract Imports Polish Economy Still Strong, But Price Customers Do Not Want to be Exposed and Declines Squeeze Margins Committed to Import Lead Times in Falling Good News is European Inventories are Low Market Arab States Have Significant Tonnage on the Nonferrous Exports to China Nonexistent in Ground or in Transit Current Market; Turn to European Outlets Turkish Import Offers to U.S. Find No Buyers Domestic OTCG Imports Still Good Croatian Volume Building; Production is Key Copper Tube Hurt by Rapid Price Declines Raw Material Markets Still Strong 4th Quarter 2008 4th Quarter 2008 2
  3. 3. Asia / Pacific Project Review Arizona Micro Mill Chinese Have the Foreign Reserves and the – All Required Permits Received in August Central Control to Maintain 8-9% GDP – Expected Commissioning Date September 2009 – $155 Million Cost – 280,000 Tons of Rebar China Initiatives Include Polish Wire Rod Block – Lowering Taxes and Interest Rates – First Bars Produced in October – Increasing Export Subsidies – Will Significantly Upgrade Wire Rod and Coiled Rebar Offerings – $40 Million Total Cost – Increasing Public Housing Spending – 40-50,000 Additional Tons of Production in Fiscal 2009 – Fund Major Infrastructure Work Polish Flexible Section Mill – Ground Broken; Construction Underway – Curtail Steel Production – $190 Million – 650,000 MT Other Asian Markets Quiet; No Turnaround – Increased Product Range; Higher Quality Wire Rod / Larger Sizes – Expected Commissioning January 2010 Until Chinese New Year SAP Australian Market Still Exhibiting Strength – Third Wave Rollout Now Complete – First Rebar Fab Plants Now Running SAP – Next Rollout – Two Domestic Mills and First Recycling Plants 4th Quarter 2008 4th Quarter 2008 CMC Steel Arizona CMC Steel Arizona Mesa, Arizona Mesa, Arizona Roughing Mill Foundation Melt Shop 4th Quarter 2008 4th Quarter 2008 3
  4. 4. CMC Steel Arizona Liquidity Mesa, Arizona $500 Million 10 Year Bond 7.3% Completed in August $400 Million Commercial Paper Program Fab Shop $200 Million Domestic A/R Securitization Cooling Bed Agreement $340 Million International A/R Sales Programs Unsecured Bank Credit Lines Favorable Debt Covenants 4th Quarter 2008 4th Quarter 2008 What Will Break the Cycle? Government Intervention Programs Must be Shown Effective Get the Election Over With Possible Capital / Infrastructure Stimulus Restore Confidence Statistics 4th Quarter 2008 4
  5. 5. Quarterly Net Sales Return on Beginning Equity ($ in Millions) 3,227 $3,500 2,911 50.0 43.3 $3,000 39.6 2,403 2,337 2,203 40.0 $2,500 29.1 $2,000 26.0 30.0 $1,500 15.0 20.0 10.7 $1,000 9.4 5.7 10.0 3.8 $500 $0 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 4Q07 1Q08 2Q08 3Q08 4Q08 Discontinued Operations 4th Quarter 2008 4th Quarter 2008 Quarterly Earnings Per Diluted Share LIFO Earnings Analysis ($ in Millions) $1.25 $200 155 143 140 0.86 $150 119 $1.00 99 92 78 78 $100 66 0.57 $0.75 0.55 0.51 $50 0.34 $0.50 $0 -$50 $0.25 -$100 $0.00 -$150 4Q07 1Q08 2Q08 3Q08 4Q08 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 Earnings Before LIFO Expense LIFO Expense/Income 4th Quarter 2008 4th Quarter 2008 5
  6. 6. Dividend Payout Per Share LIFO Expense (Income) Pre-Tax by Fiscal Year (Thousands) 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 4th Qtr. 2007 2008 2008 2008 2008 $0.60 Americas (9,292) 1,832 4,969 15,187 (5,094) Recycling $0.50 0.45 Americas (135) (3,863) 18,193 55,327 40,152 $0.40 Mills 0.33 Americas (3,124) 4,307 35,160 57,023 100,945 $0.30 Fab & Dist. International 0.17 3,743 (6,538) 632 (385) 3,893 $0.20 Fab & Dist. 0.12 0.09 0.08 0.07 $0.10 (8,808) (4,262) 58,954 127,152 139,896 Total $0.00 2002 2003 2004 2005 2006 2007 2008 4th Quarter 2008 4th Quarter 2008 Adjusted Operating Profit Capital Expenditures by Segment ($ in Millions) 4th Qtr. 2007 4th Qtr. 2008 600 28% 12% 13% 450 500 45% 355 19% 41% 20% 400 300 206 36% 38% 200 131 110 (52)% 52 100 0 Americas Fab Americas International Fab International Americas 2004 2005 2006 2007 2008 Projected & Distribution Mills & Distribution Recycling Mills 2009 4th Quarter 2008 4th Quarter 2008 6
  7. 7. Adjusted Operating Profit Average Selling Prices ($ in Millions) Americas Americas Recycling Recycling 500 3.40 52.9 $465 $60 450 $2.82 2.90 $50 400 33.8 $40 350 2.40 CU & AL $ Pound Ferrous $ Tons 300 $30 1.90 250 $20 200 1.40 $10 150 $1.02 0.90 $0 100 4Q07 4Q08 50 0.40 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Ferrous Aluminum Copper Source: CMC 4th Quarter 2008 4th Quarter 2008 Quarterly Scrap Shipments Adjusted Operating Profit (Tons 000’s) ($ in Millions) Americas Americas Recycling Mills $100 861 794 1,000 $80 64.0 800 49.2 $60 600 400 $40 200 $20 0 4Q07 4Q08 $0 Ferrous Nonferrous 4Q07 4Q08 4th Quarter 2008 4th Quarter 2008 7
  8. 8. Americas Steel Mills Americas Steel Mills Average Selling Prices Product Mix Americas Americas (Tons 000’s) ($ per Ton) Mills Mills 673 CMC TX CMC AL CMC SC CMC AR 631 630 800 594 548 884 700 $950 878 600 863 $850 858 500 328 309 364 373 346 $750 400 $650 300 $550 200 220 285 266 300 285 $450 100 $350 0 4Q07 1Q08 2Q08 3Q08 4Q08 l l v g g t r r n b n p c r r 8 y y Ju Ju Oc Ap Ap Ma Ma No De Au Au Ju Fe Ju Se Ma Ma n -0 Ja Merchant Shapes, Billets & Rebar Structurals 4th Quarter 2008 4th Quarter 2008 Americas Steel Mill Margins Electric Rates by Quarter 4th Quarter Comparisons Americas Americas Mills Mills FY FY CMC-TX CMC-AL CMC-SC CMC-AR 2008 2007 Change 10.00 Avg. Selling Price $838 $591 247 9.00 Cents/KWH 8.00 Cost of Scrap Utilized $448 $239 209 7.00 6.00 Metal Margin $390 $352 38 5.00 Tons Shipped* 631 548 83 4.00 Billet Tons Shipped* 120 102 18 3.00 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 *Tons in thousands 4th Quarter 2008 4th Quarter 2008 8
  9. 9. Natural Gas Rates by Quarter Percentage of Manufactured Cost Per Ton Average of Mills in Texas / Alabama / South Carolina Americas Americas Mills Mills CMC-TX CMC-AL CMC-SC CMC-AR Year Year 20.00 Ended Ended 8/31/08 8/31/01 17.00 14.00 Material (Scrap) $/MCF 60% 35% Supplies 11.00 10% 15% (Electrodes/Alloys) 8.00 Utilities (Electricity/Gas) 8% 13% 5.00 Maintenance 5% 8% 2.00 Labor 4% 8% 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 Depreciation 2% 6% Other 11% 15% 4th Quarter 2008 4th Quarter 2008 Copper Tube Manufacturing Copper Tube Manufacturing Average Prices Pounds Shipped Americas Americas (in Millions) Mills Mills 6.00 CY Avg – 4.34 LY Avg – 4.06 5.00 Selling 24 4.00 21 P r ic e P e r P o u n d 16.7 18 3.00 14.5 13.9 Cost 13.5 13.3 15 12.8 CY Avg – 3.38 11.7 11.5 LY Avg – 3.09 10.4 12 2.00 9 1.00 6 3 0.00 0 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 l l t r r n b n r r p y y g Ja c g v Ju Ju Oc 08 Ap Ap Ma Ma De Fe Ju Ju Ma Au No Ma Au Se n- 4th Quarter 2008 4th Quarter 2008 9
  10. 10. Adjusted Operating Profit Shipments (Tons 000’s) ($ in Millions) Americas Americas Fabrication Fabrication & Distribution & Distribution 600 36.1 $50 470 452 $40 429 428 500 $30 376 $20 (67.0) 400 $10 $0 300 -$10 -$20 200 -$30 100 -$40 -$50 0 -$60 4Q07 1Q08 2Q08 3Q08 4Q08 -$70 4Q07 4Q08 Posts Deck Structurals Joist Rebar 4th Quarter 2008 4th Quarter 2008 CMCZ (Poland) Average Selling Prices* Adjusted Operating Profit International ($ in Millions) Americas Fabrication Mills & Distribution 4th Quarter $80 63.0 2008 2007 $60 Rebar $983 $876 Joist $1,352 $1,223 $40 21.7 Deck $1,491 NA Structural $2,996 $2,306 $20 Fence Post $1,012 $736 $0 4Q07 4Q08 *Excludes Stock and Buyout Sales 4th Quarter 2008 4th Quarter 2008 10
  11. 11. CMCS (Croatia) CMCZ Mill Margins Adjusted Operating Loss 4th Quarter FY Comparisons International ($ in Millions) International Mills Mills 2008 2007 Avg. Selling Price (PLN) 2,091 1,620 $10 Cost of Scrap Utilized (PLN) 1,351 893 Metal Margin (PLN) 740 727 $5 Rebar Tons Shipped* 122 154 (5.9) (4.5) (8.5) (6.4) Wire Rod Tons Shipped* 125 99 $0 Billet Tons Shipped* 177 56 -$5 Total Tons Shipped* 424 309 % Domestic 37% 68% -$10 1Q08 2Q08 3Q08 4Q08 *Tons in thousands 4th Quarter 2008 4th Quarter 2008 CMCS Mill Stats Adjusted Operating Profit 4th Quarter FY 2008 ($ in Millions) International International Fabrication Mills & Distribution $50 Tons Melted 17,596 35.7 Tons Rolled 21,161 $40 Tons Shipped 19,557 24.3 $30 Welded Tons Shipped 10,425 $20 Drawn Tons Shipped 624 $10 Seamless Tons Shipped 8,508 $0 % Domestic 27% 4Q07 4Q08 LIFO Expense: 3.7 3.9 4th Quarter 2008 4th Quarter 2008 11
  12. 12. Investor Information Forward-Looking Statements This written and verbal presentation may contain forward-looking Non-GAAP Financial Measures statements regarding the outlook for the Company's financial results including net earnings, product pricing and demand, production rates, and Regulation G interest rates, inventory levels, impact of acquisitions and general market conditions. These forward-looking statements generally can be identified by phrases such as the company or its management “expect,” “anticipates,” This written and verbal presentation may use financial “believe,” “ought,” “should,” “likely,” “appears,” “projected,” “forecast,” statement measures considered non-GAAP financial measures “outlook,” “will” or other words or phrases of similar impact. There is inherent risk and uncertainty in any forward-looking statements. Variances by the Securities and Exchange Commission (SEC). will occur and some could be materially different from management's In compliance with the SEC’s Regulation G, we have current opinion. Developments that could impact the Company's expectations include solvency of financial institutions and their ability or provided on our web site at willingness to lend, extent of government intervention and its effect on capital markets, construction activity, difficulties or delays in the execution www.cmc.com of construction contracts resulting in cost overruns or contract disputes, metals pricing over which the Company exerts little influence, interest rate changes, increased capacity and product availability from competing steel a reconciliation to the most comparable GAAP measure and minimills and other steel suppliers including import quantities and pricing, other information that may be of interest to investors. court decisions, industry consolidation or changes in production capacity or utilization, the ability to integrate acquisitions into operations; global factors including political and military uncertainties, credit availability, currency fluctuations, energy and supply prices and decisions by governments impacting the level of steel imports and pace of overall economic activity, particularly China. 4th Quarter 2008 4th Quarter 2008 12

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