<PAGE> 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 May 31, 1997
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 May 31, 1997 there were 14,682,166 shares of the Company's common stock
issued and outstanding excluding 1,450,417 shares held in the Company's
treasury.
<PAGE> 2
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
---------
<S> <C>
PART I - Financial Statements:
Consolidated Balance Sheets -
May 31, 1997 and August 31, 1996 2 - 3
Consolidated Statements of Earnings -
Nine months and three months ended 4
May 31, 1997 and May 31, 1996
Consolidated Statements of Cash Flows -
Nine months ended May 31, 1997
and May 31, 1996 5
Consolidated Statement of Stockholders'
Equity - May 31, 1997 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of the
Consolidated Financial Statements 8 - 13
PART II - Other Information and Signatures 14- 15
Exhibit 11 (a) - Calculation of Primary and
Fully Diluted Earnings per Share 16
</TABLE>
Page 1
<PAGE> 3
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands except share data)
<TABLE>
<CAPTION>
May 31, August 31,
1997 1996
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 14,447 $ 24,260
Accounts receivable (less allowance for
collection losses of $6,040 and $5,501) 304,216 294,611
Inventories 211,603 186,201
Other 46,864 34,411
--------- ---------
TOTAL CURRENT ASSETS 577,130 539,483
OTHER ASSETS 6,603 4,563
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land 17,352 17,272
Buildings 52,659 45,902
Equipment 435,603 407,286
Leasehold improvements 20,395 19,761
Construction in process 30,674 16,748
--------- ---------
556,683 506,969
Less accumulated depreciation
and amortization (315,382) (284,259)
--------- ---------
241,301 222,710
--------- ---------
$ 825,034 $ 766,756
========= =========
</TABLE>
See notes to consolidated financial statements.
Page 2
<PAGE> 4
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands except share data)
<TABLE>
<CAPTION>
May 31, August 31,
1997 1996
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Commercial paper $ 30,000 $ --
Notes payable 30,300
Accounts payable 132,427 116,971
Other payables and accrued expenses 122,180 128,879
Income taxes payable 224 6,729
Current maturities of long-term debt 11,502 11,494
--------- ---------
TOTAL CURRENT LIABILITIES 326,633 264,073
DEFERRED INCOME TAXES 21,044 21,044
LONG-TERM DEBT 135,228 146,506
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
14,682,166 and 15,095,964 shares 80,663 80,663
Additional paid-in capital 13,496 13,193
Retained earnings 282,797 262,772
--------- ---------
376,956 356,628
Less treasury stock,
1,450,417 and 1,036,619 shares at cost (34,827) (21,495)
--------- ---------
342,129 335,133
--------- ---------
$ 825,034 $ 766,756
========= =========
</TABLE>
See notes to consolidated financial statements
Page 3
<PAGE> 5
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
May 31, May 31,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 586,141 $ 634,569 $ 1,636,463 $ 1,737,662
Other revenue 3,505 4,575 9,899 9,882
----------- ----------- ----------- -----------
589,646 639,144 1,646,362 1,747,544
COST AND EXPENSES:
Cost of goods sold 523,637 572,906 1,460,288 1,560,415
Selling, general and
administrative expenses 42,944 39,817 123,499 113,229
Interest expense 3,898 4,215 11,055 12,072
Employees' pension and
profit sharing plans 4,247 3,423 10,645 10,094
----------- ----------- ----------- -----------
574,726 620,361 1,605,487 1,695,810
EARNINGS BEFORE INCOME TAXES 14,920 18,783 40,875 51,734
INCOME TAXES 5,410 6,771 14,987 18,880
----------- ----------- ----------- -----------
NET EARNINGS $ 9,510 $ 12,012 $ 25,888 $ 32,854
=========== =========== =========== ===========
Net earnings per share $ 0.63 $ 0.79 $ 1.69 $ 2.15
Cash dividends per share $ 0.13 $ 0.12 $ 0.39 $ 0.36
Average shares outstanding 15,177,065 15,231,431 15,326,178 15,276,198
</TABLE>
See notes to consolidated financial statements.
Page 4
<PAGE> 6
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine months ended
May 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 25,888 $ 32,854
Adjustments to earnings not requiring cash:
Depreciation and amortization 32,634 31,330
Provision for losses on receivables 1,087 1,414
Other (182) (286)
----------- -----------
Cash flows from operations before changes in
operating assets and liabilities 59,427 65,312
Changes in operating assets and liabilities
Decrease (increase) in receivables (10,692) (44,178)
Decrease (increase) in inventories (25,402) 15,530
Decrease (increase) in other assets (14,493) 3,824
Increase (decrease) in accounts payable,
accrued expenses and income taxes 2,252 (16,774)
----------- -----------
Net Cash Provided by Operating Activities 11,092 23,714
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Owen Steel -- (2,799)
Purchase of property, plant and equipment (51,225) (32,258)
Sales of property, plant and equipment 182 286
----------- -----------
Net Cash Used by Investing Activities (51,043) (34,771)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Commercial paper - net change 30,000 5,000
Notes payable - net change 30,300 32,291
Payments on long-term debt (11,270) (14,067)
Stock issued under stock option/purchase plans 4,698 4,771
Treasury stock acquired (17,727) (13,465)
Dividends paid (5,863) (5,436)
----------- -----------
Net Cash Provided by Financing Activities 30,138 9,094
----------- -----------
Decrease in Cash and Cash Equivalents (9,813) (1,963)
Cash and Cash Equivalents at Beginning of Year 24,260 21,018
----------- -----------
Cash and Cash Equivalents at End of Period $ 14,447 $ 19,055
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 5
<PAGE> 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, 1996 16,132,583 $80,663 $13,193 $262,772 (1,036,619) ($21,495)
Net earnings for nine months
ended May 31, 1997 25,888
Cash dividends - $.39 a share (5,863)
Treasury stock acquired (628,993) (17,727)
Stock issued under stock option,
purchase and bonus plans 303 215,195 4,395
---------- ------- ------- -------- --------- -------
Balance, May 31, 1997 16,132,583 $80,663 $13,496 $282,797 (1,450,417) ($34,827)
========== ======= ======= ======== ========= =======
</TABLE>
See notes to consolidated financial statements.
Page 6
<PAGE> 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 28,571 7,143 35,714
8.75% note due 1999 6,427 4,286 10,713
Other 230 73 303
-------- -------- --------
$135,228 $ 11,502 $146,730
======== ======== ========
</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
May 31, 1997, the results of operations for the nine months then ended and cash
flows for the same periods. The results of operations for the nine month
periods are not necessarily indicative of the results to be expected for a full
year.
Page 7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(in millions)
3RD QTR 3rd Qtr
FY 1997 FY 1996
------- -------
<S> <C> <C>
Revenues $ 590 $ 639
Net earnings 9.5 12.0
Cash flow 20.9 22.6
LIFO reserve 31.3 32.8
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS Nine Months
FY 1997 FY 1996
------- -------
<S> <C> <C>
Revenues $ 1,646 $1,748
Net earnings 25.9 32.9
Cash flow 59.4 65.3
</TABLE>
SIGNIFICANT EVENTS AFFECTING THE COMPANY THIS QUARTER:
- - Strong shipments but an inconsistent pricing climate resulted in earnings
lower than last year's record third quarter.
- - Steel Group achieved record shipments for a quarter but lower operating
profit due to lower selling prices and nonoperating expenses.
- - Copper tube division margins squeezed by imports.
- - Ferrous scrap prices declined while nonferrous metals were mixed.
- - Marketing and Trading consistent with last year.
Page 8
<PAGE> 10
The Lifo method of inventory valuation decreased net earnings for the quarter
$803 thousand (5 cents per share) compared to an increase of $91 thousand (1
cent per share) last year. For the nine months net earnings were $952 thousand
lower (6 cents per share) compared to a increase of $959 thousand (6 cents per
share) last year.
SEGMENT OPERATING DATA
Revenues and operating profit by business segment are shown in the
following table:
<TABLE>
<CAPTION>
Three months ended Nine months ended
May 31 May 31 May 31 May 31
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Manufacturing $ 277,871 $ 266,462 $ 780,920 $ 751,005
Recycling 129,414 122,297 340,695 354,699
Marketing and
Trading 198,669 264,215 572,938 677,970
Corporate and
Eliminations (16,308) (13,830) (48,191) (36,130)
----------- ----------- ----------- -----------
$ 589,646 $ 639,144 $ 1,646,362 $ 1,747,544
OPERATING PROFIT:
Manufacturing $ 13,421 $ 16,804 $ 38,125 $ 45,595
Recycling 1,255 2,638 3,562 6,796
Marketing and
Trading 4,745 4,391 13,754 13,102
Corporate and
Eliminations (603) (835) (3,511) (1,687)
----------- ----------- ----------- -----------
$ 18,818 $ 22,998 $ 51,930 $ 63,806
</TABLE>
MANUFACTURING -
Operating profit for the segment was 20% below last year's record third
quarter. Record shipments were offset by lower pricing and computer migration
and pension expenses. The Copper Tube Division was adversely affected by a
margin squeeze precipitated by imports.
<TABLE>
<CAPTION>
3rd Qtr 1997 3rd Qtr 1996
------------ ------------
<S> <C> <C>
Average mill selling price $319.29 $320.87
Average fab selling price 632.12 632.92
Average scrap purchase price 113.60 112.73
</TABLE>
Page 9
<PAGE> 11
The Steel Group operating profit was down 20% from the prior year quarter.
Shipments by the four minimills totaled 517,000 tons or 9% above last year's
third quarter resulting in higher operating profits despite slightly lower
pricing and minor increases in scrap costs. Especially notable is that SMI
South Carolina achieved a record quarter for profitability.
Delays on larger structural jobs and moderately lower fabricated rebar
shipments resulted in lower operating profit for the Company's steel
fabrication businesses. Profits declined in most product lines, including
joists and fence posts. Fabricated steel shipments were up slightly, however,
average prices were about even with the prior year.
The Company's fourth joist manufacturing plant will start operations in
June in Nevada. The recently acquired heat treating plant in Pennsylvania is
doing well.
Computer migration costs during the quarter were $1.7 million. During the
quarter the Steel Group terminated the Company's only remaining defined benefit
plan. Payment of benefits to participants is expected to occur by May 31,1998.
A curtailment loss of $540,000 was accrued during the third quarter. The
current annual financial statement pension expense of $1.2 million and cash
contribution of $1.5 million will be reduced to an immaterial amount in fiscal
1998 and eliminated altogether thereafter. This expense reduction will be
offset by a one time settlement liability at time of payout presently estimated
to be no greater than $1.5 million. Therefore pension expense will be
substantially equivalent in FY 1998 to the current year but will be eliminated
thereafter.
The Copper Tube Division operating profit was 28% below last year as gross
margins came under pressure due to reduced housing starts and increased imports
from Mexico. Shipments were up 6%, building market share and taking advantage
of increased productivity.
RECYCLING -
Although net sales increased modestly, the Recycling segment reported a
52% decrease in operating profit compared with last year's third quarter. The
prior year period included a pretax Lifo credit of $522,000 versus a current
period charge of $520,000. Gross margins on nonferrous scrap improved whereas
ferrous margins were tighter. Total shipments declined slightly. Domestic
demand for scrap was good, while exports were weaker except for Mexico. The
Page 10
<PAGE> 12
average steel scrap price was $123 per ton compared with $125 per ton in the
third quarter of last year and shipments were down 4,000 tons to 299,000 tons.
Aluminum prices were 6% higher while copper prices were 6% lower and overall
nonferrous shipments were up 5% to 56,000 tons.
MARKETING AND TRADING -
Operating income for the Marketing and Trading segment increased 8%
although revenues were 25% lower compared to the prior year. For the third
quarter, the segment had pretax Lifo income of $611,000 compared to income of
$31,000 in the previous year's quarter. Steel trading margins were pressured by
intensely competitive global markets, diminished buying by China and continuing
exports from the CIS. The Far East markets, in general, were weaker. The steel
and nonferrous marketing and distribution businesses continued to be good on
account of strong customer service. Results for other industrial material
product lines including primary metals, secondary metals, mineral, refractories
and building materials were steady. Toward the end of the quarter a steel
supply contract was consummated with Essar Steel in India and CMC Trading AG
will market over $100 million of steel products for Essar during the next three
years. The Tokyo office was converted to an exclusive representative agency
arrangement, and a small office was opened in Germany to facilitate steel
imports.
OTHER
The Company will adopt Statement of Financial Accounting Standards No.
128, Earnings per Share, as of the quarter ending February 28,1998. It is not
expected to have a significant impact on reported amounts of earnings per
share.
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
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<PAGE> 13
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, will not have a material adverse effect on the business or
consolidated financial position of the Company.
OUTLOOK
The outlook generally remains favorable with a number of our markets
showing some improvement. Most importantly, during the quarter we began to
implement modest price increases in the U.S. on reinforcing bar and merchant
shapes. Steel fabrication markets are mixed, margins on copper plumbing tube
should improve and ferrous scrap markets are steady. The trends in nonferrous
metal prices are diverse but demand should remain active. The continued
economic pickup in Latin America should be beneficial.
This report contains forward-looking statements regarding the outlook for
the Company's short-term financial results including shipments, pricing, demand
and general market conditions. There is inherent risk and uncertainty in any
forward-looking statements. Variances will occur and some could be materially
different from management's current opinion. Developments that could impact the
Company's expectations include interest rate changes, construction activity,
metals pricing over which the Company exerts little influence, new capacity and
product availability from competing steel minimills and other steel suppliers,
currency fluctuations and decisions by governments impacting the pace of
overall economic growth.
LIQUIDITY
Cash flow from operations before changes in operating assets and
liabilities for the nine months was $59 million compared to $65 million last
year. The decrease was attributable to lower net earnings. Accounts receivable
increased $11 million since August 31 principally due to increased third
quarter activity in the Recycling segment. Inventories have increased $25
million since year end principally due to seasonal buildups in the
Manufacturing segment. Other assets increased due to funding of a non-
qualified employee benefit plan, and advance payments for a salvage job and
material purchase. The Company invested $51 million in capital expenditures as
part of its anticipated $70 million annual capital program.
Page 12
<PAGE> 14
Commercial paper and notes payable increased $60 million to supplement
current cash flow to fund working capital, capital expenditures, and long-term
debt payments.
During the quarter, the Company repurchased 628,993 shares of Company
stock at an average cost of $28.18 per share. May 31,1997, there were
14,682,166 common shares issued and outstanding with 1,450,417 shares held in
the Company's treasury. Stockholders' equity was $342 million or $23.30 per
share.
Long-term debt as a percent of total capitalization was 27.1% at May
31,1997 compared to 29.1% at August 31,1996. The ratio of total debt to total
capitalization plus short- term debt stood at 36.3%.
Net working capital was $250 million at May 31,1997 compared to $275
million at August 31,1996. The current ratio was 1.8 compared to 2.0 at August
31,1996. The Company's effective tax rate for the nine months was 36.7%,
comparable to the prior period.
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<PAGE> 15
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
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits required by Item 601 of Regulation S-K.
Exhibit No.
14
<PAGE> 16
11. Computation of Per Share Earnings
(a) Calculation of Primary and Fully
Diluted Earnings Per Share
27. Financial Data Schedule
B. No reports on Form 8-K have been filed during the quarter
for which this report is filed.
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
July 10, 1997 Lawrence A. Engels
Vice President, Treasurer
& Chief Financial Officer
July 10, 1997 William B. Larson
Controller
15
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
11 (a) Calculation of Primary and Fully Diluted Earnings Per Share
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11 (a)
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE*
(In thousands except share data)
<TABLE>
<CAPTION>
Nine Months ended
May 31
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net earnings $ 25,888 $ 32,854
Weighted average number
of shares outstanding 15,021,396 15,116,014
Dilutive effect of stock option and
purchase plans, after application
of treasury stock method 304,782 160,184
Shares used in calculating primary
net earnings per share 15,326,178 15,276,198
Earnings per share $ 1.69 $ 2.15
</TABLE>
*Fully diluted earnings per share are identical to
primary earnings per share.
Page 16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<CASH> 14,447
<SECURITIES> 0
<RECEIVABLES> 310,256
<ALLOWANCES> 6,040
<INVENTORY> 211,603
<CURRENT-ASSETS> 577,130
<PP&E> 556,683
<DEPRECIATION> 315,382
<TOTAL-ASSETS> 825,034
<CURRENT-LIABILITIES> 326,633
<BONDS> 135,228
0
0
<COMMON> 80,663
<OTHER-SE> 261,466
<TOTAL-LIABILITY-AND-EQUITY> 825,034
<SALES> 1,636,463
<TOTAL-REVENUES> 1,646,362
<CGS> 1,460,288
<TOTAL-COSTS> 1,460,288
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,087
<INTEREST-EXPENSE> 11,055
<INCOME-PRETAX> 40,875
<INCOME-TAX> 14,987
<INCOME-CONTINUING> 25,888
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,888
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 0
</TABLE>
