UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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COMMERCIAL METALS COMPANY | ||||
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COMMERCIAL METALS COMPANY REPORTS IMPROVED FIRST QUARTER EARNINGS AND ANNOUNCES QUARTERLY DIVIDEND
Irving, TX — January 6, 2012 — Commercial Metals Company (NYSE: CMC) today reported net earnings of $107.7 million or $0.93 per diluted share on net sales of $2.0 billion for the first quarter ended November 30, 2011. The earnings represent a substantial improvement over net earnings of $0.7 million or $0.01 per diluted share reported in last year’s first quarter. Net earnings from continuing operations increased significantly to $125.0 million or $1.07 per diluted share as compared to net earnings of $14.9 million or $0.13 per diluted share for last year’s first quarter. In addition to operating improvements, continuing operations for this year’s first quarter benefited from a tax benefit of $102.0 million ($0.87 per share) related to ordinary worthless stock and bad debt deductions from the investment in the Company’s Croatian subsidiary. Continuing operations also had after-tax LIFO income of $15.5 million in the first quarter of fiscal 2012 as compared to $3.9 million of after-tax LIFO expense in the first quarter of 2011.
CMC’s discontinued operations, which consist primarily of the Croatian pipe mill, had a net loss of $17.3 million ($0.14 per share) for this year’s first quarter as compared to a net loss of $14.1 million ($0.12 per share) in the same period last year. On October 7, 2011, CMC announced its decision to exit the Croatian pipe mill business by closure of the facility and sale of the assets. At the end of the first quarter of fiscal 2012, production in the melt shop and rolling mill ceased. Final shipments will be made in the second quarter of fiscal 2012. Severance costs of approximately $18 million were recognized by the Croatian mill in this year’s first quarter and the Company forecasts costs associated with this facility to be greatly reduced in the following months.
Joe Alvarado, President and Chief Executive Officer, said, “We achieved another quarter of profitability, reflecting the continued effective execution of our business plan and the fact that this plan is beginning to yield positive results. Our mill segments, including our Polish mill, achieved profitability with higher volume, selling prices and metal margins as compared to the first quarter of 2011. Although ferrous scrap prices started to fall near the end of the quarter, our Americas Recycling segment still achieved higher adjusted operating profit than last year’s first quarter. We are also encouraged to see our backlog at levels higher than last quarter.”
Cash and short-term investments totaled $228.1 million as of November 30, 2011. Cash flow from operating activities for this quarter was $38 million with adjusted EBITDA of $55.5 million. There were no outstanding borrowings against the $400 million revolving credit facility. Coverage tests under the Company’s unused revolver and public debt were met. On December 27, 2011, CMC entered into a new five year credit revolver with a borrowing capacity of $300 million plus the option to increase up to $400 million. On December 28, 2011, CMC increased its domestic receivable sales facility capacity by $100 million to $200 million.
The CMC board declared a quarterly dividend of $0.12 on January 5, 2012 for shareholders of record on January 20, 2012. The dividend will be paid on February 3, 2012.
(CMC First Quarter Fiscal 2012 – Page 2 )
Our Americas Mills, Americas Recycling and International Mills segments led the first quarter’s profitability with adjusted operating profit increasing over last year’s first quarter. Americas Mills had an adjusted operating profit of $57.9 million, $23.8 million higher than last year’s first quarter. Our new Arizona mill within this segment also had another quarter of profitability. Americas Recycling had adjusted operating profit of $20.8 million, compared to $8.2 million in the first quarter of 2011. The International Mills segment, consisting of our mill and other operations in Poland, had an adjusted operating profit of $9.8 million in this year’s first quarter, compared to $6.4 million in the same period last year. Our Polish mill achieved this level of profitability despite incurring the downtime and costs of a major, scheduled maintenance in this year’s first quarter.
The Americas Fabrication segment continues to be affected by an overall difficult rebar fabricated steel market. Recent restructuring actions helped reduce the quarterly adjusted operating loss to $7.4 million, a significant improvement over last year’s first quarter adjusted operating loss of $22.0 million. The backlog for this segment grew slightly over last quarter’s backlog with the average sales price increasing $30 per ton over last quarter and $136 per ton over last year’s first quarter.
Although our International Marketing and Distribution segment has been profitable for the nine previous quarters, it incurred an adjusted operating loss of $4.1 million this quarter, primarily due to a charge incurred on long positions CMC held on iron ore purchase contracts. During October 2011, iron ore prices dropped 31% before beginning to recover at the end of the first quarter.
Outlook
Alvarado concluded, “Our second quarter is historically our slowest quarter due to weather-related slowdowns in construction and holiday seasons around the world. That said, we expect scrap prices to rise in the second quarter of 2012, which should benefit our recycling operations; however, our mills and fabrication operations could temporarily experience metal margin compression. Moreover, as previously mentioned, our backlog remains somewhat higher than the last quarter with improved prices. We also remain focused on and continue to make good progress in improving our operating cost structure and cash flows. Despite the anticipated seasonal slowdown in the second quarter, we look forward to continuing to build on our momentum in 2012 and beyond.”
Conference Call
CMC invites you to listen to a live broadcast of its first quarter 2012 conference call today, Friday, January 6, 2012, at 11:00 a.m. ET. The call will be hosted by Joe Alvarado, President and CEO, and Barbara Smith, Senior Vice President and CFO, and can be accessed via our website at www.cmc.com or at www.streetevents.com. In the event you are unable to listen to the live broadcast, the call will be archived and available for replay on the webcast on the next business day. Financial and statistical information presented in the broadcast can be found on CMC’s website under “Investor Relations.”
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.
(CMC First Quarter Fiscal 2012 – Page 3 )
Forward-Looking Statements
Certain statements contained in this news release are forward-looking statements regarding the outlook for the Company’s financial results, including net earnings (loss), economic conditions, credit availability, product pricing and demand, production rates, the date of final shipment from the Croatian pipe mill and general market conditions. These forward-looking statements can generally be identified by words such as “expects,” “anticipates,” “believes,” “estimates,” “intends,” “plans to,” “ought,” “could,” “will,” “should,” “likely,” “appears,” “projects,” “forecasts,” or other similar words or phrases. There are inherent risks and uncertainties in any forward-looking statements. Although the Company believes that its expectations are reasonable, it can give no assurance that these expectations will prove to have been correct, and actual results may vary materially. Except as required by law, the Company undertakes no obligation to update, amend or clarify any forward-looking statements to reflect events, new information or otherwise.
Developments that could impact the Company’s expectations include the following: absence of global economic recovery or possible recession relapse; solvency of financial institutions and their ability or willingness to lend; success or failure of governmental efforts to stimulate the economy, including restoring credit availability and confidence in a recovery; continued sovereign debt problems in Greece and other countries within the euro zone and other foreign zones; customer non-compliance with contracts; construction activity or lack thereof; decisions by governments affecting the level of steel imports, including tariffs and duties; litigation claims and settlements; difficulties or delays in the execution of construction contracts resulting in cost overruns or contract disputes; metals pricing over which the Company exerts little influence; increased capacity and product availability from competing steel minimills and other steel suppliers, including import quantities and pricing; execution of cost minimization strategies; ability to retain key executives; court decisions and regulatory rulings; industry consolidation or changes in production capacity or utilization; global factors, including political and military uncertainties; currency fluctuations; interest rate changes; availability and pricing of raw materials, including scrap metal, energy, insurance and supply prices; passage of new, or interpretation of existing, environmental laws and regulations; severe weather, especially in Poland; the pace of overall economic activity, particularly in China; and business disruptions, costs and future events related to the tender offer and proxy contest initiated by Carl C. Icahn and affiliated entities.
(CMC First Quarter Fiscal 2012 – Page 4 )
| Three months ended | ||||||||
| (Short Tons in Thousands) | 11/30/11 | 11/30/10 | ||||||
| Americas Steel Mill Rebar Shipments |
324 | 302 | ||||||
| Americas Steel Mill Structural and Other Shipments |
317 | 270 | ||||||
| CMCZ Shipments |
378 | 356 | ||||||
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| Total Mill Tons Shipped |
1,019 | 928 | ||||||
| Americas Steel Mill Average FOB Selling Price (Total Sales) |
$ | 707 | $ | 605 | ||||
| Americas Steel Mill Average Cost Ferrous Scrap Utilized |
$ | 385 | $ | 312 | ||||
| Americas Steel Mill Metal Margin |
$ | 322 | $ | 293 | ||||
| Americas Steel Mill Average Ferrous Scrap Purchase Price |
$ | 344 | $ | 280 | ||||
| CMCZ Mill Average FOB Selling Price (Total Sales) |
$ | 603 | $ | 565 | ||||
| CMCZ Mill Average Cost Ferrous Scrap Utilized |
$ | 375 | $ | 340 | ||||
| CMCZ Mill Metal Margin |
$ | 228 | $ | 225 | ||||
| CMCZ Mill Average Ferrous Scrap Purchase Price |
$ | 310 | $ | 278 | ||||
| Americas Fabrication Rebar Shipments |
213 | 213 | ||||||
| Americas Fabrication Structural and Post Shipments |
32 | 34 | ||||||
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| Total Americas Fabrication Tons Shipped |
245 | 247 | ||||||
| Americas Fabrication Avg. Selling Price (Excluding Stock and Buyout Sales) |
$ | 880 | $ | 775 | ||||
| Americas Recycling Tons Shipped |
598 | 558 | ||||||
BUSINESS SEGMENTS
(in thousands)
| Three months ended | ||||||||
| 11/30/11 | 11/30/10 | |||||||
| Net Sales: |
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| Americas Recycling |
$ | 414,805 | $ | 375,795 | ||||
| Americas Mills |
525,496 | 435,397 | ||||||
| Americas Fabrication |
319,768 | 287,753 | ||||||
| International Mills |
296,181 | 217,186 | ||||||
| International Marketing and Distribution |
710,071 | 645,906 | ||||||
| Corporate and Eliminations |
(279,501 | ) | (186,945 | ) | ||||
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| Total Net Sales |
$ | 1,986,820 | $ | 1,775,092 | ||||
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| Adjusted Operating Profit (Loss): |
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| Americas Recycling |
$ | 20,816 | $ | 8,192 | ||||
| Americas Mills |
57,931 | 34,143 | ||||||
| Americas Fabrication |
(7,380 | ) | (22,008 | ) | ||||
| International Mills |
9,822 | 6,433 | ||||||
| International Marketing and Distribution |
(4,101 | ) | 24,238 | |||||
| Corporate and Eliminations |
(29,413 | ) | (10,300 | ) | ||||
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| Adjusted Operating Profit from Continuing Operations |
$ | 47,675 | $ | 40,698 | ||||
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(CMC First Quarter Fiscal 2012 – Page 5 )
COMMERCIAL METALS COMPANY
Condensed Consolidated Statements of Earnings (Unaudited)
(in thousands except share and per share data)
| Three months ended | ||||||||
| 11/30/11 | 11/30/10 | |||||||
| Net Sales |
$ | 1,986,820 | $ | 1,775,092 | ||||
| Costs and Expenses: |
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| Cost of Goods Sold |
1,814,284 | 1,614,875 | ||||||
| Selling, General and Administrative Expenses |
126,521 | 120,730 | ||||||
| Interest Expense |
16,297 | 17,871 | ||||||
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| 1,957,102 | 1,753,476 | |||||||
| Earnings from Continuing Operations Before Taxes |
29,718 | 21,616 | ||||||
| Income Taxes (Benefit) |
(95,327 | ) | 6,730 | |||||
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| Earnings from Continuing Operations |
125,045 | 14,886 | ||||||
| Loss from Discontinued Operations Before Taxes |
(27,003 | ) | (13,885 | ) | ||||
| Income Taxes (Benefit) |
(9,694 | ) | 259 | |||||
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| Loss from Discontinued Operations |
$ | (17,309 | ) | $ | (14,144 | ) | ||
| Net Earnings |
107,736 | 742 | ||||||
| Less Net Earnings Attributable to Noncontrolling Interests |
2 | 91 | ||||||
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| Net Earnings Attributable to CMC |
$ | 107,734 | $ | 651 | ||||
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| Basic Earnings (Loss) per Share Attributable to CMC |
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| Earnings from Continuing Operations |
$ | 1.08 | $ | 0.13 | ||||
| Loss from Discontinued Operations |
(0.15 | ) | (0.12 | ) | ||||
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| Net Earnings |
$ | 0.93 | $ | 0.01 | ||||
| Diluted Earnings (Loss) per Share Attributable to CMC |
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| Earnings from Continuing Operations |
$ | 1.07 | $ | 0.13 | ||||
| Loss from Discontinued Operations |
(0.14 | ) | (0.12 | ) | ||||
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| Net Earnings |
$ | 0.93 | $ | 0.01 | ||||
| Cash Dividends per Share |
$ | 0.12 | $ | 0.12 | ||||
| Average Basic Shares Outstanding |
115,530,545 | 114,319,017 | ||||||
| Average Diluted Shares Outstanding |
116,449,483 | 115,223,693 | ||||||
(CMC First Quarter Fiscal 2012 – Page 6 )
COMMERCIAL METALS COMPANY
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
| November 30, | August 31, | |||||||
| 2011 | 2011 | |||||||
| Assets: |
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| Current Assets: |
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| Cash and cash equivalents |
$ | 228,103 | $ | 222,390 | ||||
| Accounts receivable, net |
787,968 | 956,852 | ||||||
| Inventories |
894,555 | 908,338 | ||||||
| Other |
351,781 | 238,673 | ||||||
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| Total Current Assets |
2,262,407 | 2,326,253 | ||||||
| Net Property, Plant and Equipment |
1,005,491 | 1,112,015 | ||||||
| Goodwill |
76,764 | 77,638 | ||||||
| Other Assets |
161,991 | 167,225 | ||||||
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| $ | 3,506,653 | $ | 3,683,131 | |||||
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| Liabilities and Stockholders’ Equity: |
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| Current Liabilities: |
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| Accounts payable – trade |
$ | 457,130 | $ | 585,289 | ||||
| Accounts payable – documentary letters of credit |
183,763 | 170,683 | ||||||
| Accrued expenses and other payables |
374,078 | 377,774 | ||||||
| Notes payable |
48,624 | 6,200 | ||||||
| Current maturities of long-term debt |
3,697 | 58,908 | ||||||
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| Total Current Liabilities |
1,067,292 | 1,198,854 | ||||||
| Deferred Income Taxes |
1,375 | 49,572 | ||||||
| Other Long-Term Liabilities |
102,956 | 106,560 | ||||||
| Long-Term Debt |
1,152,869 | 1,167,497 | ||||||
| Stockholders’ Equity Attributable to CMC |
1,181,980 | 1,160,425 | ||||||
| Stockholders’ Equity Attributable to Noncontrolling Interests |
181 | 223 | ||||||
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| $ | 3,506,653 | $ | 3,683,131 | |||||
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(CMC First Quarter Fiscal 2012 – Page 7 )
COMMERCIAL METALS COMPANY
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
| Three months ended | ||||||||
| 11/30/11 | 11/30/10 | |||||||
| Cash Flows From (Used by) Operating Activities: |
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| Net earnings |
$ | 107,736 | $ | 742 | ||||
| Adjustments to reconcile net earnings to cash from (used by) operating activities: |
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| Depreciation and amortization |
35,028 | 40,643 | ||||||
| Provision for losses (recoveries) on receivables, net |
239 | (522 | ) | |||||
| Share-based compensation |
3,881 | 2,135 | ||||||
| Deferred income taxes |
(112,237 | ) | 72 | |||||
| Tax benefits from stock plans |
— | (71 | ) | |||||
| Net (gain) loss on sale of assets and other |
374 | (1,527 | ) | |||||
| Write-down of inventory |
5,907 | 3,815 | ||||||
| Asset impairment |
1,044 | — | ||||||
| Changes in Operating Assets and Liabilities, Net of Acquisitions: |
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| Decrease (increase) in accounts receivable |
94,061 | (16,233 | ) | |||||
| Accounts receivable sold, net |
47,785 | 21,994 | ||||||
| Increase in inventories |
(24,786 | ) | (22,428 | ) | ||||
| Decrease in other assets |
2,978 | 291 | ||||||
| Decrease in accounts payable, accrued expenses, other payables and income taxes |
(121,167 | ) | (35,710 | ) | ||||
| Increase (decrease) in other long-term liabilities |
(2,704 | ) | 1,208 | |||||
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| Net Cash Flows From (Used By) Operating Activities |
38,139 | (5,591 | ) | |||||
| Cash Flows From (Used by) Investing Activities: |
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| Capital expenditures |
(29,925 | ) | (11,904 | ) | ||||
| Proceeds from the sale of property, plant and equipment, and other . |
7,014 | 51,518 | ||||||
| Increase in deposit for letters of credit |
(865 | ) | (1,523 | ) | ||||
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| Net Cash Flows From (Used By) Investing Activities |
(23,776 | ) | 38,091 | |||||
| Cash Flows From (Used by) Financing Activities: |
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| Increase (decrease) in documentary letters of credit |
13,080 | (108,614 | ) | |||||
| Short-term borrowings, net change |
44,432 | 79,127 | ||||||
| Repayments on long-term debt |
(44,584 | ) | (7,390 | ) | ||||
| Proceeds from issuance of long-term debt |
— | 45 | ||||||
| Stock issued under incentive and purchase plans |
(27 | ) | 389 | |||||
| Cash dividends |
(13,863 | ) | (13,722 | ) | ||||
| Purchase of noncontrolling interests |
(30 | ) | — | |||||
| Tax benefits from stock plans |
— | 71 | ||||||
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| Net Cash Flows Used By Financing Activities |
(992 | ) | (50,094 | ) | ||||
| Effect of Exchange Rate Changes on Cash |
(7,658 | ) | 1,081 | |||||
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| Increase (Decrease) in Cash and Cash Equivalents |
5,713 | (16,513 | ) | |||||
| Cash and Cash Equivalents at Beginning of Year |
222,390 | 399,313 | ||||||
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| Cash and Cash Equivalents at End of Period |
$ | 228,103 | $ | 382,800 | ||||
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(CMC First Quarter Fiscal 2012 – Page 8 )
COMMERCIAL METALS COMPANY
Non-GAAP Financial Measures (Unaudited)
(dollars in thousands except per share data)
This press release uses financial measures not derived in accordance with generally accepted accounting principles (GAAP). Reconciliations to the most comparable GAAP measures are provided below.
Adjusted Operating Profit from Continuing Operations is a non-GAAP financial measure. Adjusted operating profit is used to compare and evaluate the financial performance of the Company. Adjusted operating profit is the sum of our earnings before income taxes, outside financing costs and discounts on sales of accounts receivable. For added flexibility, we may sell certain accounts receivable both in the U.S. and internationally. We consider sales of receivables as an alternative source of liquidity to finance our operations and believe that removing these costs provides a clearer perspective of the current operating performance.
| Three months ended | ||||||||
| 11/30/11 | 11/30/10 | |||||||
| Earnings from continuing operations |
$ | 125,045 | $ | 14,886 | ||||
| Interest expense |
16,297 | 17,871 | ||||||
| Income taxes (benefit) |
(95,327 | ) | 6,730 | |||||
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| Operating income from continuing operations |
46,015 | 39,487 | ||||||
| Discounts on sales of accounts receivable |
1,660 | 1,211 | ||||||
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| Adjusted operating profit from continuing operations |
$ | 47,675 | $ | 40,698 | ||||
Adjusted EBITDA is a non-GAAP liquidity measure. It excludes Commercial Metals Company’s largest recurring non-cash charge, depreciation and amortization, including impairment charges. As a measure of cash flow before interest expense, it is one guideline used to assess the Company’s ability to pay its current debt obligations as they mature and a tool to calculate possible future levels of leverage capacity. Adjusted EBITDA to interest is a covenant test in certain of the Company’s note agreements.
| Three months ended | ||||||||
| 11/30/11 | 11/30/10 | |||||||
| Net earnings attributable to CMC |
$ | 107,734 | $ | 651 | ||||
| Interest expense |
16,748 | 18,325 | ||||||
| Income taxes (benefit) |
(105,021 | ) | 6,989 | |||||
| Depreciation, amortization and impairment charges |
36,072 | 40,643 | ||||||
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| Adjusted EBITDA |
$ | 55,533 | $ | 66,608 | ||||
Adjusted EBITDA to interest coverage for the quarter ended November 30, 2011:
$55,533 / 16,748 = 3.3
Total Capitalization:
Total capitalization is the sum of long-term debt, deferred income taxes, and stockholders’ equity. The ratio of debt to total capitalization is a measure of current debt leverage. The following reconciles total capitalization at November 30, 2011 to the nearest GAAP measure, stockholders’ equity:
| Stockholders’ equity attributable to CMC |
$ | 1,181,980 | ||
| Long-term debt |
1,152,869 | |||
| Deferred income taxes |
1,375 | |||
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| Total capitalization |
$ | 2,336,224 |
(CMC First Quarter Fiscal 2012 – Page 9 )
Other Financial Information
Long-term debt to capitalization ratio as of November 30, 2011:
Debt divided by capitalization
$1,152,869 / 2,336,224 = 49.3%
Total debt to capitalization plus short-term debt plus notes payable ratio as of November 30, 2011:
($1,152,869 + 3,697 + 48,624) / (2,336,224 + 3,697 + 48,624) = 50.5%
Current ratio as of November 30, 2011:
Current assets divided by current liabilities
$2,262,407 / 1,067,292 = 2.1
| Contact: | Barbara Smith Chief Financial Officer 214.689.4300 |