<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 November 30, 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 November 30, 1997 there were 14,826,324 shares of the Company's
common stock issued and outstanding excluding 1,306,259 shares held in the
Company's treasury.
<PAGE> 2
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
------------------------------------------
INDEX
-----
Page No.
---------
PART I - Financial Statements:
Consolidated Balance Sheets -
November 30, 1997 and August 31, 1997 2 - 3
Consolidated Statements of Earnings -
Three months ended November 30, 1997 and 4
November 30, 1996
Consolidated Statements of Cash Flows -
Three months ended November 30,
1997 and 1996
5
Consolidated Statement of Stockholders'
Equity - November 30, 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
Page 1
<PAGE> 3
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
(In thousands except share data)
<TABLE>
<CAPTION>
Nov. 30, August 31,
1997 1997
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 19,603 $ 32,998
Accounts receivable (less allowance for
collection losses of $6,534 and $6,116) 277,700 289,735
Inventories 208,383 220,644
Other 41,817 41,899
--------- ---------
TOTAL CURRENT ASSETS 547,503 585,276
OTHER ASSETS 6,535 6,524
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land 18,317 17,844
Buildings 61,120 55,700
Equipment 451,504 447,553
Leasehold improvements 21,405 19,666
Construction in process 39,890 29,841
--------- ---------
592,236 570,604
Less accumulated depreciation
and amortization (334,045) (323,343)
--------- ---------
258,191 247,261
--------- ---------
$ 812,229 $ 839,061
========= =========
</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>
Nov. 30, August 31,
1997 1997
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Commercial paper $ -- $ --
Notes payable 28,320 --
Accounts payable 103,006 136,988
Other payables and accrued expenses 99,776 129,036
Income taxes payable 3,772 618
Current maturities of long-term debt 11,500 11,502
--------- ---------
TOTAL CURRENT LIABILITIES 246,374 278,144
DEFERRED INCOME TAXES 20,834 20,834
LONG-TERM DEBT 183,123 185,211
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
14,826,324 and 14,760,390 shares 80,663 80,663
Additional paid-in capital 12,970 13,627
Retained earnings 299,730 293,600
--------- ---------
393,363 387,890
Less treasury stock,
1,306,259 and 1,371,653 shares at cost (31,465) (33,018)
--------- ---------
361,898 354,872
--------- ---------
$ 812,229 $ 839,061
========= =========
</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
November 30,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
REVENUES:
Net sales $ 547,099 $ 526,859
Other revenues 3,402 4,102
------------ ------------
550,501 530,961
COSTS AND EXPENSES:
Cost of goods sold 486,700 469,307
Selling, general and
administrative expenses 42,157 40,000
Interest expense 4,179 3,471
Employees' pension and
profit sharing plans 4,743 3,674
------------ ------------
537,779 516,452
EARNINGS BEFORE INCOME TAXES 12,722 14,509
INCOME TAXES 4,669 5,332
------------ ------------
NET EARNINGS $ 8,053 $ 9,177
============ ============
Net earnings per share $ 0.54 $ 0.60
Cash dividends per share $ 0.13 $ 0.13
Average shares outstanding 15,006,095 15,388,196
</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>
Three months ended
November 30,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 8,053 $ 9,177
Adjustments to earnings not requiring cash:
Depreciation and amortization 11,278 10,658
Provision for losses on receivables 507 268
Deferred income taxes
Other 25 (67)
---------- ----------
Cash flows from operations before changes in
operating assets and liabilities 19,863 20,036
Changes in operating assets and liabilities:
Decrease (increase) in receivables 11,528 (8,110)
Decrease (increase) in inventories 12,261 (4,993)
Decrease (increase) in other assets 71 (2,477)
Increase (decrease) in accounts payable,
accrued expenses and income taxes (60,088) (31,126)
---------- ----------
Net Cash Used by Operating Activities (16,365) (26,670)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (22,208) (16,948)
Sales of property, plant and equipment (25) 67
---------- ----------
Net Cash Used by Investing Activities (22,233) (16,881)
CASH FLOWS FROM FINANCING ACTIVITIES:
Commercial paper - net change -- --
Notes payable - net change 28,320 35,000
Payments on long-term debt (2,090) (2,087)
Stock issued under stock option/bonus plans 895 328
Dividends paid (1,922) (1,964)
---------- ----------
Net Cash Provided by Financing Activities 25,203 31,277
Decrease in Cash and Cash Equivalents (13,395) (12,274)
Cash and Cash Equivalents at Beginning of Year 32,998 24,260
---------- ----------
Cash and Cash Equivalents at End of Period $ 19,603 $ 11,986
========== ==========
</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, 1997 16,132,583 $ 80,663 $ 13,627 $ 293,599 (1,371,653) ($ 33,018)
Net earnings for three months
ended November 30, 1997 8,053
Cash dividends - $.13 a share (1,922)
Treasury stock acquired
Stock issued under stock option,
purchase and bonus plans (657) 65,394 1,553
Tax benefits related to stock
option plans
----------- ----------- ----------- ----------- ----------- -----------
Balance, November 30, 1997 16,132,583 $ 80,663 $ 12,970 $ 299,730 (1,306,259) ($ 31,465)
=========== =========== =========== =========== =========== ===========
</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>
6.80% notes due 2007 $ 50,000 $ -- $ 50,000
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 4,284 4,286 8,570
Other 268 71 339
-------------- -------------- --------------
$ 183,123 $ 11,500 $ 194,623
============== ============== ==============
</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, 1997, 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
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(in millions)
1st Qtr 1st Qtr
FY 1998 FY 1997
---------- ----------
<S> <C> <C>
Revenues $ 551 $ 531
Net earnings 8.1 9.2
Cash flow 19.9 20.0
LIFO reserve 29.3 29.3
</TABLE>
SIGNIFICANT EVENTS AFFECTING THE COMPANY THIS QUARTER:
- - Excluding a prior year nonrecurring insurance recovery, results were
comparable to last year, but below expectations.
- - Steel Group achieved record tons melted, rolled and shipped for a first
quarter.
- - Record capital expenditure budget underway.
- - Recycling reported a disappointing loss.
- - Intense competition and poor international markets lowered Marketing and
Trading results.
CONSOLIDATED DATA
The Lifo method of inventory valuation increased net earnings for the quarter
$521 thousand (3 cents per share) compared to an increase of $348 thousand (2
cents per share) last year.
Page 8
<PAGE> 10
SEGMENT OPERATING DATA
Revenues and operating profit by business segment are shown in the following
table:
<TABLE>
<CAPTION>
Three months ended November 30,
-------------------------------
1997 1996
------------- --------------
<S> <C> <C>
REVENUES:
Manufacturing $ 290,918 $ 257,959
Recycling 104,126 96,074
Marketing and Trading 172,776 194,557
Corporate and Eliminations (17,319) (17,629)
---------- ----------
$ 550,501 $ 530,961
========== ==========
OPERATING PROFIT:
Manufacturing $ 14,670 $ 13,997
Recycling (490) 190
Marketing and Trading 3,388 5,356
Corporate and Eliminations (667) (1,563)
---------- ----------
$ 16,901 $ 17,980
========== ==========
</TABLE>
MANUFACTURING -
Operating profit for the segment was 5% above the prior year quarter on 13%
higher revenues. Shipments were strong but weaker prices in both steel as noted
in the table below and copper tube markets moderated profits.
<TABLE>
<CAPTION>
1st Qtr 1998 1st Qtr 1997
------------ ------------
<S> <C> <C>
Average mill selling price $315 $319
Average fab selling price 657 686
Average scrap purchase price 112 114
</TABLE>
Nevertheless, the Steel Group's operating profit was 19% higher compared to last
year's first quarter. First quarter records were set for steel mill tons melted,
rolled and shipped. Shipments by the four mills totaled 527,000 tons or 23%
higher than last year. The increase in profits was led by SMI Alabama which beat
its previous earnings record by 30%. SMI Arkansas and SMI South Carolina were
also substantially ahead of last year. SMI Texas exceeded last
Page 9
<PAGE> 11
year's tons shipped; however, profitability was lower because of the $1.7
million nonrecurring insurance recovery in the prior year.
Operating profit in the Company's steel fabrication businesses was
slightly below last year's strong first quarter. Shipments were a record 196,000
tons but the average selling price declined.
The Company has a record $125 million capital plan for fiscal 1998,
primarily at the steel mills. Construction of the new rolling mill at SMI South
Carolina is underway and preparations have begun for SMI Alabama's new finishing
line including a cooling bed, straighteners and stackers.
Copper tube production and shipments exceeded last year's first quarter
but weak prices resulted in lower operating profits. Demand for plumbing tube
was solid as mortgage interest rates remained favorable.
RECYCLING-
The Recycling segment reported a disappointing loss. The volume of
ferrous scrap shipped increased 11% to 299,000 while nonferrous shipments were
unchanged at 46,000 tons. Steel scrap prices were higher than last year and
margin percentages held level. Aluminum scrap countered lower margins with
higher volume and profits remained steady. Copper and brass markets were weak
with declining volumes and margins. Increases in processing costs associated
with new capacity failed to bring in sufficient margin increases. The segment
was also negatively impacted by rail service problems in the Southwest.
Subsequent to quarter end the Company acquired two secondary processing
facilities in Florida and one in Houston. The operations are neither
individually nor combined significant to the financial position of the Company,
however the Florida acquisition marks the Company's entry into the auto salvage
business to enhance sourcing of scrap.
MARKETING AND TRADING-
Revenues and operating income of the Marketing and Trading segment were
significantly below last year's first quarter. Whereas our North American
business remained good,
Page 10
<PAGE> 12
intense competition and poor international markets exacerbated by Asian currency
crises caused lower margins elsewhere. Most of the Asian markets did a complete
reversal and induced a shift in trade flows. Many customers sharply curtailed
their purchases; conversely, suppliers sought to increase exports. Steel trading
was particularly negatively impacted. Steel marketing and distribution and
nonferrous metal products remained steady. Results from ores, minerals and
industrial materials were down.
OTHER
Since August 1996 various divisions of the Company have been upgrading
both hardware and software to meet commercial requirements. As part of these
enterprise wide solutions, year 2000 considerations are being addressed. The
Company has not separately considered the cost of the millennium solution as it
is only a byproduct of the larger project.
The Steel Group computer migration effort incurred expenses of $1.65
million during the first quarter. The Marketing and Trading segment in
conjunction with the Corporate office has been involved with implementation of
new financial and management information systems. Estimates of costs are still
soft but total capital expenditures for computer hardware and period expenses
for software are not anticipated to exceed $2 million incurred over three
fiscal years.
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
Page 11
<PAGE> 13
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 Company's domestic steel markets are firm and margins should widen
during the balance of the year despite the Asian situation and its effect on all
markets. The underlying construction, manufacturing and distributor markets in
North America are strong. Some improvement in copper tube and recycling profits
is expected, although scrap markets remain uncertain. Global demand and prices
for steel and nonferrous metals are likely to be weaker near term. Management
continues to focus on internal improvements and remains cautiously optimistic
about this fiscal year and very positive for the future on account of the
Company's inherent strengths and strategic plan.
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 three months was approximately $20 million, comparable to
the prior year period. Increased depreciation offset lower net earnings.
Accounts receivable decreased $12 million principally in the Recycling segment
and domestic trading units. Inventories decreased $12 million partially offset
by an increase in the new SMI Rail division of $8 million with declines at
several international trading divisions. Accounts payable, accrued expenses and
income taxes decreased $60 million spread across all the Company's
Page 12
<PAGE> 14
segments. Part of the decrease is due to timing of vendor payments in the
Marketing and Trading segment and to the payment of incentive compensation and
funding of employee benefit plans. The Company invested $22 million in capital
projects as part of its anticipated $125 million annual capital program.
Notes payable increased $28 million to supplement current cash flow to
fund working capital and capital expenditures.
At November 30,1997 there were 14,826,324 common shares issued and
outstanding with 1,306,259 held in the Company's treasury. Stockholders' equity
was $362 million or $24.41 per share.
Long-term debt as a percent of total capitalization was 32.4% at
November 30,1997 compared to 33% at August 31,1997.The ratio of total debt to
total capitalization plus short-term debt stood at 36.8%, an increase from year
end due to seasonal borrowing requirements.
Net working capital was $301 million at November 30,1997 compared to
$307 million at August 31,1997. The current ratio was 2.2 compared to 2.1 at
August 31,1997. The Company's effective tax rate for the three months was 36.7%,
comparable to the prior period.
Page 13
<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, 1997 filed November 25, 1997, 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
Page 14
<PAGE> 16
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
January 13, 1998 /s/ Lawrence A. Engels
------------------------------
Vice President, Treasurer
& Chief Financial Officer
January 13, 1998 William B. Larson
Controller
Page 15
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
11. Computation of Per Share Earnings
(a) Calculation of Primary and Fully Diluted Earnings
Per Share
27. Financial Data Schedule
</TABLE>
Page 16
<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>
Three Months ended
November 30,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net earnings $ 8,053 $ 9,177
Weighted average number
of shares outstanding 14,787,066 15,105,722
Dilutive effect of stock option and
purchase plans, after application
of treasury stock method 219,029 282,474
Shares used in calculating primary
net earnings per share 15,006,095 15,388,196
Earnings per share $ 0.54 $ 0.60
</TABLE>
*Fully diluted earnings per share are identical to
primary earnings per share.
Page 17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 19,603
<SECURITIES> 0
<RECEIVABLES> 284,234
<ALLOWANCES> 6,534
<INVENTORY> 208,383
<CURRENT-ASSETS> 547,503
<PP&E> 592,236
<DEPRECIATION> 334,045
<TOTAL-ASSETS> 812,229
<CURRENT-LIABILITIES> 246,374
<BONDS> 183,123
0
0
<COMMON> 80,663
<OTHER-SE> 281,235
<TOTAL-LIABILITY-AND-EQUITY> 812,229
<SALES> 547,099
<TOTAL-REVENUES> 550,501
<CGS> 486,700
<TOTAL-COSTS> 486,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 507
<INTEREST-EXPENSE> 4,179
<INCOME-PRETAX> 12,722
<INCOME-TAX> 4,669
<INCOME-CONTINUING> 8,053
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,053
<EPS-PRIMARY> .54
<EPS-DILUTED> 0
</TABLE>
