Commercial Metals Company (CMC) purchases and processes scrap metals for use as raw materials by manufacturers of new metal products. CMC produces finished long steel products, including rebar and merchant bar, as well as semi-finished billets and wire rod.
1 FORM 1O-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 2O549 ---------------------------------- QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------------------------- For quarter ended November 30, 1995 Commission File Number 1-4304 COMMERCIAL METALS COMPANY - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 75-0725338 - -------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 7800 Stemmons Freeway P. O. Box 1046 Dallas, Texas 75221 ----------------------------------------------------------- ( Address of principal executive offices ) ( Zip Code ) (214) 689-4300 ----------------------------------------------------------- ( Registrant's telephone number, including area code ) ----------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months ( or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- As of November 30, 1995 there were 14,902,247 shares of the Company's common Stock issued and outstanding excluding 1,230,336 shares held in the Company's treasury.
2 COMMERCIAL METALS COMPANY AND SUBSIDIARIES INDEX <TABLE> <CAPTION> Page No. --------- <S> <C> PART I - Financial Statements: Consolidated Balance Sheets - November 30, 1995 and August 31, 1995 2 - 3 Consolidated Statements of Earnings - Three Months ended November 30, 1995 4 and November 30, 1994 Consolidated Statements of Cash Flows - Three Months ended November 30, 1995 and November 30, 1994 5 Consolidated Statement of Stockholders' Equity - November 30, 1995 6 Notes to Consolidated Financial Statements 7 Management's Discussion and Analysis of the Consolidated Financial Statements 8 - 12 PART II - Other Information and Signatures 13- 14 Exhibit 11 (a) - Calculation of Primary and Fully Diluted Earnings per Share 15 </TABLE> Page 1
3 COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS ( In thousands except share data ) <TABLE> <CAPTION> November 30, August 31, 1995 1995 ---------- --------- <S> <C> <C> CURRENT ASSETS: Cash $10,872 $21,018 Accounts receivable (less allowance for collection losses of $4,965 and $4,743) 284,342 268,657 Inventories 200,813 208,114 Other 33,809 36,316 -------- -------- TOTAL CURRENT ASSETS 529,836 534,105 OTHER ASSETS 4,217 4,259 PROPERTY, PLANT, AND EQUIPMENT, at cost: Land 16,637 16,629 Buildings 40,366 40,178 Equipment 386,677 372,644 Leasehold improvements 17,746 16,972 Construction in process 12,718 10,282 -------- -------- 474,144 456,705 Less accumulated depreciation and amortization (257,124) (246,966) -------- -------- 217,020 209,739 -------- -------- $751,073 $748,103 ======== ======== </TABLE> See notes to consolidated financial statements. Page 2
4 COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY ( In thousands except share data ) <TABLE> <CAPTION> November 30, August 31 1995 1995 ------------ --------- <S> <C> <C> CURRENT LIABILITIES: Commercial paper $ -- $ -- Notes payable 5,848 5,189 Accounts payable 112,592 107,906 Other payables and accrued expenses 135,213 137,933 Income taxes payable 5,299 3,246 Current maturities of long-term debt 14,084 14,108 -------- -------- TOTAL CURRENT LIABILITIES 273,036 268,382 DEFERRED INCOME TAXES 21,393 18,553 LONG-TERM DEBT 155,840 158,004 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Capital stock: Preferred stock -- -- Common stock, par value $5.00 a share; authorized 40,000,000 shares; issued 16,132,583 shares, outstanding 14,902,247 and 15,369,592 shares 80,663 80,663 Additional paid-in capital 12,476 11,946 Retained earnings 232,980 223,994 -------- -------- 326,119 316,603 Less treasury stock, 1,230,336 and 762,991 shares at cost (25,315) (13,439) -------- -------- 300,804 303,164 -------- -------- $751,073 $748,103 ======== ======== </TABLE> See notes to consolidated financial statements. Page 3
5 COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS ( In thousands except share data ) <TABLE> <CAPTION> Three Months ended November 30, ---------------------- 1995 1994 --------- ---------- <S> <C> <C> REVENUES: Net sales $588,238 $411,434 Other revenue 1,981 2,304 --------- ---------- 590,219 413,738 COSTS AND EXPENSES: Cost of goods sold 530,282 365,683 Selling, general and administrative expenses 35,712 27,324 Interest expense 3,697 3,029 Employees' pension and profit sharing plans 3,402 2,354 Litigation accrual -- 6,650 --------- ---------- 573,093 405,040 EARNINGS BEFORE INCOME TAX 17,126 8,698 INCOME TAXES 6,294 2,326 --------- ---------- NET EARNINGS $10,832 $6,372 ========= ========== Net earnings per share $0.70 $0.44 Cash dividends per share $0.12 $0.12 Average shares outstanding 15,571,619 14,537,716 </TABLE> See notes to consolidated financial statements. Page 4
6 COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> (In thousands) Three months ended November 30, --------------------- 1995 1994 - -------------------------------------------------------------------------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $10,832 $6,372 Adjustments to earnings not requiring cash: Depreciation and amortization 10,563 8,202 Provision for losses on receivables 256 331 Other (82) (188) ------- ------- Cash flows from operations before changes in operating assets and liabilities 21,569 14,717 Changes in operating assets and liabilities net of effect of Owen acquisition: Decrease (increase) in accounts receivable (17,090) 7,525 Decrease (increase) in inventories 7,301 (4,887) Decrease (increase) in other assets 2,549 987 Increase (decrease) in accounts payable, accrued expenses and income taxes 2,779 (12,271) ------- ------- Net Cash Flows from Operating Activities 17,108 6,071 - -------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Owen Steel, net of cash acquired (2,232) (24,994) Temporary investments -- 13,168 Purchase of property, plant and equipment (9,359) (5,018) Sales of property, plant and equipment 82 188 ------- ------- Net Cash Used by Investing Activities (11,509) (16,656) - -------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Commercial paper - net change -- (10,000) Notes payable - net change 659 (6,253) New long-term debt -- 60,000 Refinance long-term debt of acquisition -- (32,000) Payments on long-term debt (2,188) (2,181) Stock issued under stock option/bonus plans 389 (1,315) Treasury stock acquired (12,759) -- Tax benefits related to stock option plan -- 1,332 Dividends paid (1,846) (1,714) ------- ------- Net Cash Provided (Used by) Financing Activities (15,745) 7,869 - -------------------------------------------------------------------------- Decrease in Cash and Cash Equivalents (10,146) (2,716) Cash and Cash Equivalents at Beginning of Year 21,018 19,095 ------- ------- Cash and Cash Equivalents at End of Period $10,872 $16,379 ======= ======= </TABLE> See notes to consolidated financial statements. Page 5
7 COMMERCIAL METALS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY ( In thousands except share data ) <TABLE> <CAPTION> Common Stock Treasury Stock ----------------------- Add'l --------------------- Number of Paid-In Retained Number of Shares Amount Capital Earnings Shares Amount ----------- --------- -------- ---------- --------- -------- <S> <C> <C> <C> <C> <C> <C> Balance September 1, 1995 16,132,583 $80,663 $11,946 $223,994 (762,991) ($13,439) Net earnings for three months ended November 30, 1995 10,832 Cash dividends - $.12 a share (1,846) Treasury stock acquired (527,600) (12,759) Additonal treasury stock issued for Owen acquisition 550 37,196 472 Stock issued under stock option, purchase and bonus plans (20) 23,059 411 ---------- ------- ------- -------- --------- ------- Balance, November 30, 1995 16,132,583 $80,663 $12,476 $232,980 (1,230,336) ($25,315) ========== ======= ======= ======== ========= ======= </TABLE> See notes to consolidated financial statements. Page 6
8 COMMERCIAL METALS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - LONG-TERM DEBT AND EQUITY (in thousands): <TABLE> <CAPTION> Amount Current Long-Term Outstanding Maturities Debt ----------- ---------- --------- <S> <C> <C> <C> <C> 7.20% notes due 2005 $100,000 $ -- $100,000 8.49% notes due 2001 42,857 7,143 50,000 8.75% note due 1999 12,856 4,286 17,142 8.15% note due 1996 2,500 2,500 Other 127 155 282 -------- -------- -------- $155,840 $14,084 $169,924 ======== ======== ======== </TABLE> NOTE B - TAXES ON INCOME: Provision for taxes on income includes estimated United States taxes on undistributed earnings of subsidiaries outside the United States. NOTE C - QUARTERLY FINANCIAL DATA: In the opinion of Management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of November 30, 1995, the results of operations for the three months then ended and cash flows for the same periods. The results of operations for the three month periods are not necessarily indicative of the results to be expected for a full year. Page 7
9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED RESULTS OF OPERATIONS <TABLE> <CAPTION> (in millions) 1ST QTR 1st Qtr FY 1996 FY 1995 ------- ------- <S> <C> <C> Revenues $ 590 $ 414 Net earnings 10.8 6.4 Cash flow 21.6 14.7 LIFO reserve 34.0 21.4 </TABLE> SIGNIFICANT EVENTS AFFECTING THE COMPANY THIS QUARTER: - - Record first quarter net earnings, an increase of 70% over the same period last year. - - Record cash flow from operations, an increase of 47%. - - Steel Group achieved record sales, shipments, and profit for a first quarter. - - Marketing and Trading had a strong quarter. CONSOLIDATED DATA The LIFO method of inventory valuation had the effect of increasing net earnings for the quarter $146 thousand (1 cent per share) compared to a decrease in net earnings of $73 thousand (1 cent per share) last year. In connection with its November 15,1994 acquisition of Owen Steel Company, Inc. and affiliates (Owen), the Company settled contingencies related to the net worth purchase price calculation and certain uncollected accounts receivable of Owen. The net worth adjustment resulted in the Company Page 8
10 paying the former shareholders $3.2 million, half in cash and half in the Company's common stock as a purchase price adjustment. Conversely, the Company assigned certain uncollected accounts receivable to the former shareholders and was reimbursed $1.1 million. Under the acquisition agreement, the Company has until November 15,1996 to present certain claims against the portion of the purchase price remaining in escrow which was $4.4 million at November 30,1995. The first quarter of last year included a nonrecurring charge for litigation which reduced net earnings by $4.1 million. This was partially offset by a credit to income tax expense of $1.0 million resulting from the favorable resolution of tax issues with the Internal Revenue Service. SEGMENT OPERATING DATA Revenues and operating profit by business segment are shown in the following table: <TABLE> <CAPTION> Three months ended November 30, ------------------------------- 1995 1994 -------- -------- <S> <C> <C> REVENUES: Manufacturing $244,740 $161,738 Recycling 122,628 100,821 Marketing and Trading 236,107 162,463 Corporate and Eliminations (13,256) (11,284) -------- -------- $590,219 $413,738 ======== ======== OPERATING PROFIT: Manufacturing $ 15,188 $ 13,822 Recycling 1,514 2,269 Marketing and Trading 4,500 3,715 Corporate and Eliminations (379) (8,079) -------- -------- $ 20,823 $ 11,727 ======== ======== </TABLE> Page 9
11 MANUFACTURING - Led by record Steel Group sales, shipments, and profits for a first quarter, the segment achieved a 51% increase in revenues and a 10% increase in operating profits. The SMI Owen companies were profitable for the quarter. First quarter records were set for steel mill tons melted, rolled and shipped. Shipments by the four mills totaled 409,000 tons or 31% higher than last year's first quarter (which excluded SMI South Carolina). SMI Birmingham's operating profits tripled. SMI Texas had a solid quarter despite a week's melt shop downtime due to an electrical fire. Estimated loss expenses were accrued without consideration of insurance recovery which is still pending. Results in our steel fabrication businesses were excellent with operating profits about two-thirds above last year. Fabricated shipments were 149,000 tons for the quarter versus 95,000 tons and the average selling price increased 8%. Copper Tube operating profits were down a third from last year; demand for plumbing tube weakened early in the quarter and spreads were under pressure. Shipments were 6% lower than the first quarter last year. RECYCLING - The Recycling segment operating profit declined 33% compared with the same period last year, reflecting lower percentage gross margins on scrap processed. Prices for steel scrap, aluminum, copper and brass all declined during the quarter; however, scrap prices were mixed compared with 1995's first quarter. Scrap flow remained fairly good; the volume of ferrous scrap shipped increased 9% to 300,000 tons while nonferrous shipments increased 15% to 50,000 tons. MARKETING AND TRADING - Operating income was 21% above last year on significantly higher revenues. In September, Dallas Trading exported the largest known single cargo shipment of steel scrap, 85,000 metric tons. For the quarter Intra-Asia steel trading was strong and steel marketing and distribution in Australia reported good results. Demand for nonferrous semis remained good. The global markets generally have an oversupply imbalance leading to intense competition and lower prices. Page 10
12 ENVIRONMENTAL ACTIVITIES The Company is subject to federal, state and local pollution control laws and regulations in all locations where it has operating facilities. It anticipates that compliance with these laws and regulations will involve continuing capital expenditures and operating costs. In the ordinary course of conducting its business, the Company becomes involved in environmental litigation, administrative proceedings, and governmental investigations. Certain of these environmental matters or other proceedings may result in fines, penalties or judgments against the Company which may have a material impact on earnings for a particular quarter. While the Company is unable to estimate precisely the ultimate dollar amount of exposure to losses in connection with such matters, it makes timely accruals as warranted. It is the opinion of the Company's management that the outcome of such proceedings, individually or in the aggregate, are not expected to have a material adverse effect on the business or consolidated financial position of the Company. OUTLOOK It appears that markets will remain weaker during the second quarter but consumption in the U.S. should reaccelerate once inventory levels are corrected and the drop in interest rates begins to work its way through the economy. Underlying construction markets are firm, however, the manufacturing sector is sluggish. The Southwest and Southeast U.S. markets are expected to continue to do well. The economies in Asia should pick up after the current pause. Europe is weaker but interest rate cuts should help. LIQUIDITY Cash flow from operations before changes in operating assets and liabilities was $21.6 million, a record first quarter. Depreciation expense increased from $8.2 million to $10.6 million due mainly to the SMI Owen acquisition. Accounts receivable increased $17.1 million since August 31 due to increased business activity. The Company invested $9.4 million in capital expenditures as part of its anticipated $61 million annual capital program. Page 11
13 During the quarter the Company repurchased 527,600 shares of common stock at an average cost of $24.19 per share including 350,000 shares at $24 per share from former Owen shareholders. At November 30,1995 there were 14,902,247 shares issued and outstanding with 1,230,336 shares held in the Company's treasury. Stockholders' equity at November 30,1995 was $301 million or $20.19 per share. Net working capital was $257 million at November 30,1995 compared to $266 million at August 31,1995. The current ratio was 1.9 compared to 2.0 at August 31,1995. The Company's effective tax rate for the first quarter was 36.8%; the rate for the comparable quarter last year was 26.7% due to a credit of $1 million to income tax expense from the favorable resolution of tax issues with the Internal Revenue Service. Long-term debt as a percent of total capitalization was 32.6% at November 30,1995 compared to 32.9% at August 31,1995. The ratio of total debt to total capitalization plus short-term debt stood at 35%. Page 12
14 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Reference is made to the information incorporated by reference from Item 3. Legal Proceedings in the Company's Annual Report on Form 10-K for the year ending August 31, 1995 filed November 27, 1995, with the Securities and Exchange Commission. ITEM 2. CHANGES IN SECURITIES Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable ITEM 5. OTHER INFORMATION Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. Exhibits required by Item 601 of Regulation S-K. Exhibit No. 11. Computation of Per Share Earnings (a) Calculation of Primary and Fully Diluted Earnings Per Share 27. Financial Data Schedule Page 13
15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COMMERCIAL METALS COMPANY /s/ Lawrence A. Engels January 11, 1996 Lawrence A. Engels Vice President, Treasurer & Chief Financial Officer /s/ William B. Larson January 11, 1996 William B. Larson Controller Page 14
16 INDEX TO EXHIBITS Exhibit No. Description - ----------- ----------- 11. Computation of Per Share Earnings (a) Calculation of Primary and Fully Diluted Earnings Per Share 27. Financial Data Schedule