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, 1996 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, 1996 there were 15,116,662 shares of the Company's common stock issued and outstanding excluding 1,015,921 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, 1996 and August 31, 1996 2 - 3 Consolidated Statements of Earnings - Three months ended 4 November 30, 1996 and 1995 Consolidated Statements of Cash Flows - Three months ended November 30, 1996 and 1995 5 Consolidated Statement of Stockholders' Equity - November 30, 1996 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> NOV. 30, August 31, 1996 1996 ---------- ---------- <S> <C> <C> CURRENT ASSETS: Cash $ 11,986 $ 24,260 Accounts receivable (less allowance for collection losses of $5,803 and $5,501) 302,453 294,611 Inventories 191,194 186,201 Other 34,973 34,411 ---------- ---------- TOTAL CURRENT ASSETS 540,606 539,483 OTHER ASSETS 6,478 4,563 PROPERTY, PLANT, AND EQUIPMENT, at cost: Land 17,371 17,272 Buildings 47,904 45,902 Equipment 415,733 407,286 Leasehold improvements 19,940 19,761 Construction in process 22,693 16,748 ---------- ---------- 523,641 506,969 Less accumulated depreciation and amortization (294,641) (284,259) ---------- ---------- 229,000 222,710 ---------- ---------- $ 776,084 $ 766,756 ========== ========== </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> NOV. 30, August 31, 1996 1996 --------- --------- <S> <C> <C> CURRENT LIABILITIES: Commercial paper $ -- $ -- Notes payable 35,000 Accounts payable 105,978 116,971 Other payables and accrued expenses 108,755 128,879 Income taxes payable 6,720 6,729 Current maturities of long-term debt 11,498 11,494 --------- --------- TOTAL CURRENT LIABILITIES 267,951 264,073 DEFERRED INCOME TAXES 21,044 21,044 LONG-TERM DEBT 144,415 146,506 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 15,116,662 and 15,095,964 shares 80,663 80,663 Additional paid-in capital 13,184 13,193 Retained earnings 269,985 262,772 --------- --------- 363,832 356,628 Less treasury stock, 1,015,921 and 1,036,619 shares at cost (21,158) (21,495) --------- --------- 342,674 335,133 --------- --------- $ 776,084 $ 766,756 ========= ========= </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, ------------------------ 1996 1995 ---------- ---------- <S> <C> <C> REVENUES: Net sales $ 526,859 $ 588,238 Other revenue 4,102 1,981 ---------- ---------- 530,961 590,219 COSTS AND EXPENSES: Cost of goods sold 469,307 530,282 Selling, general and administrative expenses 40,000 35,712 Interest expense 3,471 3,697 Employees' pension and profit sharing plans 3,674 3,402 ---------- ---------- 516,452 573,093 EARNINGS BEFORE INCOME TAXES 14,509 17,126 INCOME TAXES 5,332 6,294 ---------- ---------- NET EARNINGS $ 9,177 $ 10,832 ========== ========== Net earnings per share $ 0.60 $ 0.70 Cash dividends per share $ 0.13 $ 0.12 Average shares outstanding 15,388,196 15,571,619 </TABLE> See notes to consolidated financial statements. Page 4
6 COMMERCIAL METALS COMPANY AND SUBSIDIARIES ------------------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (In thousands) <TABLE> <CAPTION> Three months ended November 30, ---------- ---------- 1996 1995 - --------------------------------------------------------------------------------------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 9,177 $ 10,832 Adjustments to earnings not requiring cash: Depreciation and amortization 10,658 10,563 Provision for losses on receivables 268 256 Other (67) (82) ---------- ---------- Cash flows from operations before changes in operating assets and liabilities 20,036 21,569 Changes in operating assets and liabilities Decrease (increase) in receivables (8,110) (16,515) Decrease (increase) in inventories (4,993) 7,301 Decrease (increase) in other assets (2,477) 2,549 Increase (decrease) in accounts payable, accrued expenses and income taxes (31,126) 2,771 ---------- ---------- Net Cash Provided (Used) by Operating Activities (26,670) 17,675 - --------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Owen Steel -- (2,799) Purchase of property, plant and equipment (16,948) (9,359) Sales of property, plant and equipment 67 82 ---------- ---------- Net Cash Used by Investing Activities (16,881) (12,076) - --------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Commercial paper - net change -- -- Notes payable - net change 35,000 659 Payments on long-term debt (2,087) (2,188) Stock issued under stock option/bonus plans 328 389 Treasury stock acquired -- (12,759) Dividends paid (1,964) (1,846) ---------- ---------- Net Cash Provided (Used) by Financing Activities 31,277 (15,745) - --------------------------------------------------------------------------------------- Decrease in Cash and Cash Equivalents (12,274) (10,146) Cash and Cash Equivalents at Beginning of Year 24,260 21,018 ---------- ---------- Cash and Cash Equivalents at End of Period $ 11,986 $ 10,872 ========== ========== </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> <C> Balance September 1, 1996 16,132,583 $ 80,663 $ 13,193 $ 262,772 (1,036,619) ($ 21,495) Net earnings for three months ended November 30, 1996 9,177 Cash dividends - $.13 a share (1,964) Stock issued under stock option, purchase and bonus plans (9) 20,698 337 ----------- ----------- ----------- ----------- ----------- ----------- Balance, November 30, 1996 16,132,583 $ 80,663 $ 13,184 $ 269,985 (1,015,921) ($ 21,158) =========== =========== =========== =========== =========== =========== </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> Long-Term Current Amount Debt Maturities Outstanding -------- ---------- ----------- <S> <C> <C> <C> 7.20%notes due 2005 $100,000 $ -- $100,000 8.49%notes due 2001 35,714 7,143 42,857 8.75%note due 1999 8,570 4,286 12,856 Other 131 69 200 -------- -------- -------- $144,415 $ 11,498 $155,913 ======== ======== ======== </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, 1996, 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 1997 FY 1996 -- ---- -- ---- <S> <C> <C> Revenues $ 531 $ 590 Net earnings 9.2 10.8 Cash flow 20.0 21.6 LIFO reserve 29.3 34.0 </TABLE> SIGNIFICANT EVENTS AFFECTING THE COMPANY THIS QUARTER: - - Second best first quarter ever, trailing only the record set in the previous year. - - Steel Group achieved record tons melted, rolled and shipped for a first quarter. - - Copper tube division strong. - - Steel and scrap selling prices lower than fourth quarter. - - Settlement of business interruption claim SMI Texas. - - Technology migration underway. CONSOLIDATED DATA The LIFO method of inventory valuation had the effect of increasing net earnings for the quarter $348 thousand (2 cents per share) compared to an increase in net earnings of $146 thousand (1 cent per share) last year. Page 8
10 During the quarter the Company acquired substantially all the operating assets of a metal recycling company with locations in Midland and Odessa, Texas. Subsequent to quarter end, the Company also announced it has entered into an agreement to acquire substantially all the operating assets of a steel heat treating facility located in Chicora, Pennsylvania. This transaction was effective January 1,1997. Neither of the acquisitions individually or combined were significant to the operations or assets of the Company. SEGMENT OPERATING DATA Revenues and operating profit by business segment are shown in the following table: <TABLE> <CAPTION> Three months ended November 30, ------------------------------- 1996 1995 ---- ---- <S> <C> <C> REVENUES: Manufacturing $257,959 $244,740 Recycling 96,074 122,628 Marketing and Trading 194,557 236,107 Corporate and Eliminations (17,629) (13,256) -------- -------- $530,961 $590,219 ======== ======== OPERATING PROFIT: Manufacturing $ 13,997 $ 15,188 Recycling 190 1,514 Marketing and Trading 5,356 4,500 Corporate and Eliminations (1,563) (379) -------- -------- $ 17,980 $ 20,823 ======== ======== </TABLE> MANUFACTURING - The segment's operating profit was 8% lower than the prior year. Strong volume was offset by weaker pricing in the Steel Group, but the Copper Tube Division benefitted from good production and widening margins. The Steel Group East companies were about breakeven for the quarter. First quarter records were set for steel mill tons melted, rolled and shipped. Shipments by the four mills totaled 428,000 tons or 5% higher than last year's first quarter. But with average higher scrap costs and slightly lower average selling prices, operating profit was 13% lower Page 9
11 than the previous year. Results included $1.7 million of other income from an insurance recovery for business interruption losses sustained subsequent to the October 1995 fire at SMI-Texas. Results in the Company's steel fabrication businesses continued strong although operating profit was 12% behind last year. Fabricated shipments were a record 173,000 tons for the quarter versus 149,000 tons with mixed average selling prices. Computer migration costs during the quarter were tracking the expected annual expense of $6.4 million. Copper Tube results were excellent as interest rates continued to fuel the expansion in single family homes. Production increased 9% over the same period last year. Shipments rose 10% and coupled with declining raw material costs, produced a significant increase in operating profits. RECYCLING - The Recycling segment showed only a small operating profit, reflecting lower revenues on scrap processed due to the weakest market conditions in over three years. Selling prices for steel scrap, stainless steel, aluminum, copper and brass all were significantly lower than 1996's first quarter primarily on account of much weaker export markets, which in turn impacted domestic prices. Steel scrap prices were weakened further because of delays in several new minimill startups. Consequently, scrap flow was impacted negatively and the volume of ferrous scrap shipped decreased 10% to 269,000 tons while nonferrous shipments declined 8% to 46,000 tons. MARKETING AND TRADING - Operating income for the segment was 19% above last year. Lower international steel trading revenues were offset by excellent results in ores, minerals, and industrial materials. Steel marketing and distribution results were good including a solid improvement in operations in the United Kingdom. Outside of the U.S.A. many customers were still reducing excessive inventories amid intense competition and generally poor markets. The segment had pretax Lifo income of $674,000 compared to $166,000 of expense in the previous year's quarter. 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 soft during the second quarter but consumption in the U.S. should reaccelerate in the spring. Global markets should improve once inventory levels are further corrected. Underlying construction, manufacturing, and distributor markets in the U.S. are firm. Manufacturing margins should show some improvement because of the increased spread between product and raw materials, although some firming of scrap might occur. The Company will continue to focus on internal improvements. LIQUIDITY Cash flow from operations before changes in operating assets and liabilities was $20.0 million, down 7% from the previous year due to lower earnings. Accounts receivable increased $8.1 million since August 31 due to increased domestic sales of ores, minerals, and industrial materials. Inventories rose $5.0 million with increased steel mill inventories offset by lower levels in Marketing and Trading. Accounts payable, accrued expenses, and income taxes decreased $31.0 million since year end with the payment of incentive compensation and funding of employee benefit plans. Page 11
13 The Company financed these working capital needs through internal cash flow and an increase in short term notes payable of $35 million. The Company invested $16.9 million in capital expenditures as part of its anticipated $70 million annual capital program. Net working capital was $273 million at November 30,1996 compared to $275 million at August 31,1996. The current ratio was maintained at 2.0. The Company's effective tax rate for the first quarter was 36.8% which was consistent with last year's comparable quarter as well as last fiscal year. Long-term debt as a percent of total capitalization was 28.4% at November 30,1996 compared to 29.1% at August 31,1996. The ratio of total debt to total capitalization plus short-term debt stood at 34.4%. Stockholders' equity at November 30,1996 was $343 million or $22.67 per share. 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, 1996 filed November 27, 1996, 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
15 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 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 13, 1997 Lawrence A. Engels Vice President, Treasurer & Chief Financial Officer /s/William B. Larson January 13, 1997 William B. Larson Controller Page 14
16 INDEX TO EXHIBITS <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION - ------- ----------- <S> <C> 11. Computation of Per Share Earnings (a) Calculation of Primary and Fully Diluted Earnings Per Share 27. Financial Data Schedule </TABLE>