<PAGE> 1
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-61379
Prospectus Supplement to Prospectus dated February 9, 1999.
<TABLE>
<S> <C> <C>
LOGO $100,000,000
LOGO
6.75% Notes due February 15, 2009
</TABLE>
------------------------
Commercial Metals Company will pay interest on the Notes on February 15 and
August 15 of each year. The first such payment will be made on August 15, 1999.
The Notes will be issued only in minimum denominations of $100,000 and integral
multiples of $1,000 in excess thereof.
Commercial Metals Company has the option to redeem all or a portion of the
Notes at any time at a price based on the present value on the redemption date,
using a discount rate based on a U.S. Treasury security having a remaining life
to maturity comparable to the Notes, of the then remaining scheduled payments of
principal and interest on the Notes to be redeemed, plus 25 basis points, plus
accrued interest. The redemption price will in no event be less than 100% of the
principal amount of the Notes to be redeemed.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
Per Note Total
-------- -----------
<S> <C> <C>
Initial public offering price............................... 99.923% $99,923,000
Underwriting discount....................................... .650% $ 650,000
Proceeds, before expenses, to Commercial Metals Company..... 99.273% $99,273,000
</TABLE>
The initial public offering price set forth above does not include accrued
interest, if any. Interest on the Notes will accrue from February 23, 1999 and
must be paid by the purchaser if Notes are delivered after February 23, 1999.
------------------------
The underwriters expect to deliver the Notes in book-entry form only
through the facilities of The Depository Trust Company against payment in New
York, New York on February 23, 1999.
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER
NATIONSBANC MONTGOMERY SECURITIES LLC
------------------------
Prospectus Supplement dated February 18, 1999.
<PAGE> 2
THE COMPANY
The following summary is qualified in its entirety by the more detailed
information and financial statements incorporated by reference in the
Prospectus.
Commercial Metals Company ("CMC" or the "Company") manufactures, recycles
and markets steel and metal products. Steel and steel-related products represent
over 75% of our business. During fiscal 1998, we derived approximately 79% of
our operating profit from our Manufacturing segment, approximately (1%) from our
Recycling segment, and approximately 22% from our Marketing and Trading segment.
Our Manufacturing segment includes four steel minimills, 20 steel
fabrication plants, four steel joist plants, four fence post manufacturing
plants, eight metals recycling plants, a heat treating plant, a railcar
rebuilding facility, 12 concrete related product warehouses, an industrial
products supply company, a rail salvage company and a copper tube mill. Our
steel manufacturing capacity of approximately 2 million tons includes
reinforcing bars, light and mid-size structurals, angles, channels, beams,
special bar quality rounds and flats, squares and special sections used in the
construction, manufacturing, steel fabrication and warehousing, and original
equipment manufacturing industries. Our steel fabrication capacity is over
800,000 tons. Our copper tube mill with 55 million pounds of capacity
manufactures copper water tube and air conditioning and refrigeration tubing.
Our Recycling segment is one of the largest processors of scrap nonferrous
metals and one of the largest regional processors of ferrous metals in the
United States. Our recycling plants processed and shipped 1.9 million tons of
scrap metal in fiscal 1998. Recycled metals provide substantial savings in
energy compared to producing metal from virgin raw materials.
Our Marketing and Trading segment buys and sells steel, primary and
secondary metals and industrial raw materials through a global network of
offices which provide technical information, financing, chartering, storage,
insurance and hedging. We do not, as a matter of policy, speculate on changes in
the commodities markets. This segment sold over 1.4 million tons of steel
products in fiscal 1998.
USE OF PROCEEDS
The net proceeds from the sale of the Notes will be used to repay bank
borrowings and short-term commercial paper. The bank borrowings and commercial
paper were utilized for working capital purposes, bear interest at rates ranging
from 5.28% to 6.25%, and at November 30, 1998, totaled $149 million and had
maturities ranging from one day to three months. We intend to utilize the
remaining net proceeds, if any, for general corporate purposes.
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<PAGE> 3
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of November 30, 1998 and as adjusted to give effect to the sale
of the Notes offered hereby and the application of the net proceeds to repay
outstanding borrowings as described under "Use of Proceeds." This table should
be read in conjunction with the Company's consolidated financial statements and
the notes thereto, which are incorporated by reference in the Prospectus.
<TABLE>
<CAPTION>
AS OF NOVEMBER 30, 1998
------------------------
AS
ACTUAL ADJUSTED
------ --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Short-term debt
Commercial paper(1)....................................... $ 50,000 $ 25,000
Notes payable(1).......................................... 99,099 24,099
Current maturities of long-term debt(1)................... 11,865 11,865
-------- --------
Total short-term debt.................................. $160,964 $ 60,964
======== ========
Long-term debt(2)
7.20% notes due 2005...................................... $100,000 $100,000
6.80% notes due 2007...................................... 50,000 50,000
8.49% notes due 2001...................................... 21,428 21,428
Other..................................................... 595 595
Notes offered hereby(3)................................... -0- 100,000
-------- --------
Total long-term debt................................... $172,023 $272,023
======== ========
Stockholders' equity
Common stock(4)........................................... $ 40,497 $ 40,497
Additional paid-in capital................................ 13,199 13,199
Retained earnings......................................... 337,714 337,714
-------- --------
Total stockholders' equity............................. $391,410 $391,410
======== ========
Total capitalization................................... $724,397 $724,397
======== ========
</TABLE>
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(1) The amounts set forth in the table are as of November 30, 1998. The actual
amounts repaid will vary depending upon the respective amounts of short-term
debt outstanding at the time of repayment.
(2) See notes to the Company's consolidated financial statements for additional
information concerning long-term debt.
(3) Does not include expenses in connection with the issuance of the Notes
offered hereby.
(4) Does not include approximately 2,029,867 shares subject to options at
November 30, 1998.
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<PAGE> 4
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data presented below for, and as of the end of, each
of the years in the five year period ended August 31, 1998, are derived from the
consolidated financial statements of the Company. This summary should be read in
conjunction with the Company's Annual Report on Form 10-K including the selected
financial data and consolidated financial statements and notes thereto. The
information presented below for, and as of the end of, each of the fiscal years
in the three-year period ended August 31, 1998 is derived from the Company's
Annual Report on Form 10-K which is incorporated by reference in the Prospectus.
The balance sheet and income statement information as of November 30, 1998
and 1997 and for the three months then ended has been derived from the Company's
unaudited financial statements, which, in the opinion of management, include all
adjustments (consisting of normally recurring accruals) that the Company
considers necessary for a fair presentation of the financial position and
results of operations at those dates and for those periods. The results of
operations for the first three months of fiscal 1999 are not necessarily
indicative of the results to be expected for the full fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED AUGUST 31, NOVEMBER 30,
-------------------------------------------------------------- ---------------------
1998 1997 1996 1995 1994 1998 1997
---- ---- ---- ---- ---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Revenues................................. $2,367,569 $2,258,388 $2,322,363 $2,116,779 $1,666,234 $ 549,376 $550,501
Cost of goods sold....................... 2,039,598 1,963,970 2,030,080 1,856,867 1,476,347 464,400 476,324
Selling, general and administrative
expenses............................... 194,387 175,106 161,941 148,524 109,566 50,663 45,997
Depreciation and amortization............ 47,460 43,720 41,599 38,134 30,143 11,853 11,278
Interest expense......................... 18,055 14,637 15,822 15,246 9,271 4,911 4,179
Earnings before income taxes............. 68,069 60,955 72,921 58,008 40,907 17,548 12,722
Net earnings............................. 42,714 38,605 46,024 38,208 26,170 11,011 8,053
Net earnings per share basic(1).......... 2.88 2.59 3.06 2.56 1.79 .76 .55
Net earnings per share diluted(1)........ 2.82 2.54 3.01 2.51 1.75 .75 .54
FINANCIAL DATA
Working capital.......................... $ 247,437 $ 307,132 $ 275,410 $ 265,723 $ 175,119 $ 214,508 $301,129
Property, plant and equipment -- net..... 318,462 247,261 222,710 209,739 156,808 358,410 258,191
Total assets............................. 1,002,617 839,061 766,756 748,103 604,877 1,029,059 812,229
Long-term debt........................... 173,789 185,211 146,506 158,004 72,061 172,023 183,123
Total debt............................... 286,081 196,713 158,000 177,301 168,825 332,987 222,943
Stockholders' equity..................... 381,389 354,872 335,133 303,164 242,773 391,410 361,898
Capital expenditures..................... 119,915 70,955 47,982 39,311 48,152 51,801 22,208
FINANCIAL RATIOS
Long-term debt as % of total
capitalization(2)...................... 30.1% 33.0% 29.1% 32.9% 21.6% 29.4% 32.4%
Ratio of earnings to fixed charges(3).... 3.9 4.3 4.9 4.2 4.2 3.4 3.6
</TABLE>
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(1) Restated in accordance with SFAS No. 128 (Earnings Per Share).
(2) Total capitalization includes stockholders' equity, long-term debt and
non-current deferred income taxes.
(3) For a description of the computation of the ratio of earnings to fixed
charges, see "Ratio of Earnings to Fixed Charges" in the Prospectus.
S-4
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT FINANCIAL RESULTS
The following discussion of financial results is qualified in its entirety
by and should be read together with the more detailed information and financial
statements incorporated by reference in the Prospectus.
SEGMENT OPERATING DATA
The Company considers its businesses to be organized into three segments:
(i) Manufacturing, (ii) Recycling, and (iii) Marketing and Trading. Revenues and
operating profit by business segment are shown in the following table (in
millions):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
AUGUST 31, NOVEMBER 30,
---------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Manufacturing....................................... $1,234 $1,083 $304 $291
Recycling........................................... 415 485 79 104
Marketing and Trading............................... 788 758 184 173
Operating profit:
Manufacturing....................................... 74.8 54.8 23.6 14.7
Recycling........................................... (1.4) 7.6 (4.1) (0.5)
Marketing and Trading............................... 20.6 17.6 4.6 3.4
</TABLE>
The LIFO method of inventory valuation increased net earnings for the three
months ended November 30, 1998, $2.0 million (14 cents per share) compared to an
increase of $521,000 (3 cents per share) last year.
THREE MONTHS ENDED NOVEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED NOVEMBER 30,
1997
MANUFACTURING
The Manufacturing segment includes the CMC Steel Group and Howell Metal
Company.
Operating profit for the Manufacturing segment was 61% above the prior year
quarter on 5% higher revenues. Lower raw material costs resulted in excellent
margins, overcoming weaker mill pricing.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
NOVEMBER 30,
-------------
1998 1997
---- ----
<S> <C> <C>
Average mill selling price.................................. $311 $315
Average fab selling price................................... 675 657
Average scrap purchase price................................ 81 112
</TABLE>
With strong performances in downstream fabrication businesses, lower raw
material costs, and a $1.8 million graphite electrode litigation settlement, the
Steel Group achieved a record first quarter operating profit. Bolstered by a $31
per ton lower average scrap purchase cost which sustained margins, the four
minimills recorded a 34% increase in operating profit despite a 20% decline in
shipments to 419,000 tons. Structural Metals, Inc. ("SMI-Texas"), SMI Steel,
Inc. ("SMI-Alabama") and SMI-South Carolina all had increases in profit over the
prior year.
SMI Steel-Arkansas ("SMI-Arkansas"), although profitable, was impacted more
by the effect of cheaper imported steel. Installation of the new rolling mill
and ancillary equipment at SMI-South Carolina is on schedule as is the new
finishing line at SMI-Alabama.
Operating profit in steel fabrication rose 80% above last year's first
quarter with strong performance in most product lines. Average fabrication
selling price rose $18 per ton, partially
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<PAGE> 6
because of product mix, while the cost of steel purchased generally fell.
Fabricated steel shipments totaled 205,000 tons (196,000 tons in the prior year)
and were a record for a first quarter.
The Copper Tube Division operating profit was over 50% ahead of the
comparable quarter last year. Favorable interest rates kept demand for plumbing
tube strong from the housing sector. Lower copper prices held sales dollars
down, but metal spreads increased. Copper tube shipments and production
decreased 3% versus the first quarter last year.
RECYCLING
The Recycling segment reported a significant loss compared with a marginal
loss in the year ago quarter due to substantially lower global demand and
declining prices coupled with less availability of unprepared scrap. Cash flow
from operations, nonetheless, was positive. Gross margins fell more rapidly than
operating costs. Steel scrap markets were the worst in 25 years. Ferrous scrap
tonnage shipped was up 4%, but ferrous sales prices dropped precipitously by an
average of $40 per ton. Nonferrous markets weakened further to the poorest
levels in many years, and the intake of scrap remained depressed, although
nonferrous margins were steady. Total volume of scrap processed, including Steel
Group processing plants, was 496,000 tons against 449,000 tons last year. During
the quarter the Company acquired the assets of a nonferrous scrap processor in
the Houston area which was not significant to the financial position of the
Company.
MARKETING AND TRADING
Amid the lowest international steel prices over the last 20 years and the
collapse of global markets, the Marketing and Trading segment achieved a
significant 37% increase in operating profit. Purchases from the Far East
continued at a higher level, shipments into North America were steady for most
product lines and business in Europe increased. However, gross margins in steel
marketing and distribution as well as steel trading were under tremendous
pressure. The Company achieved further market penetration for nonferrous metal
products including aluminum, copper and copper alloy semis and maintained
profitability. It was another profitable quarter in ores, minerals, ferrous raw
materials, primary metals and industrial products although results were below
last year's.
FISCAL 1998 COMPARED TO FISCAL 1997
MANUFACTURING
With revenues up 14% and operating profit increasing 36%, the segment set
all-time records for the year. The Steel Group led the way ending the fourth
quarter with all-time record quarterly sales and record fourth quarter
shipments. The Copper Tube Division's annual operating profit was down slightly
from last year.
<TABLE>
<CAPTION>
AUGUST 31,
----------
1998 1997
---- ----
<S> <C> <C>
Average mill selling price.................................. $322 $314
Average fab selling price................................... 660 650
Average scrap purchase price................................ 113 114
</TABLE>
Selling prices were lower at the beginning of the year but recovered, and
combined with record shipments produced a 42% increase in annual operating
profit for the Steel Group. Mill tonnage shipped at 2,008,000 was 4% ahead of
last year.
The four mills showed a 22% increase in operating profit led by SMI-Alabama
and SMI-Arkansas, each with increases in excess of 24%; particularly notable is
the turnaround in profitability of SMI-South Carolina which was profitable all
fiscal year. Its results were all the more noteworthy as they were attained in
the midst of construction of a new rolling mill. SMI-Texas' operating profit
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<PAGE> 7
was 7% ahead of the prior year, a strong performance as last year's results
included a $1.7 million nonrecurring insurance recovery. By year end, the
Company's newest and largest shredder was in successful operation at SMI-Texas.
Operating profit in the Company's steel fabrication businesses more than
doubled with record results in virtually all product areas. Fabricated shipments
of 839,000 tons were well ahead of the previous year of 690,000 tons. SMI Owen
Steel, the large structural fabrication facility in Columbia, South Carolina,
had an operating profit $4.4 million ahead of the prior year. A similar gain was
accomplished by the combined joist plants. As of August 31, 1998, the Company
ceased operations at its railcar rebuilding facility in Tulsa, Oklahoma.
Substantially all employees were released and accruals raised for liabilities
including severance, warranties, and facility costs.
Steel Group computer migration project expense totaled $8.6 million
compared with $6 million last year. Final pension settlement cost of $3.3
million was incurred as the Company's only major defined benefit plan was
terminated.
The Company had a record $120 million in capital spending for fiscal 1998,
primarily at the steel mills. Construction of the new rolling mill and ancillary
equipment at SMI-South Carolina will ultimately double capacity, reduce costs,
and broaden the product line. The finishing upgrade at SMI-Alabama (replacement
of the mill cooling bed, straighteners and stackers) will improve quality,
enhance efficiency and also broaden the product line. Start up of both projects
is scheduled to begin during the first calendar quarter of 1999.
Attractive interest rates continue to strengthen residential construction
markets, maintaining demand for plumbing tube. Margins were weak in the early
months of the year, but improved to moderate proportions by the fourth quarter.
Copper tube shipments increased 11% over the prior year to 51 million pounds.
Annual production was 4% ahead of last year's rate.
RECYCLING
The Asian economic crisis brought the Recycling segment's four-year period
of record operating profits to an abrupt end. Scrap normally exported by
competitors was diverted for domestic consumption. Selling prices fell to their
lowest levels in many years. Margins eroded while total processing costs
increased due to acquisitions; however, the new capacity failed to bring in
sufficient margin increases. All of these factors resulted in a moderate
operating loss -- the first in six years in this cyclical industry.
The fourth quarter saw ferrous scrap markets in full retreat with scrap
sales especially difficult. Nonferrous markets had weakened earlier and remained
soft. For the year, the average copper and brass scrap price dropped 22%,
aluminum fell 6%, and steel scrap was unchanged; at year end this left prices
20% below the previous year. Ferrous scrap shipped increased 11% to 1.28 million
tons; however, nonferrous shipments declined 11% to 188,000 tons, due to a drop
in copper and brass shipments. Total volume of scrap processed, including the
Steel Group processing plants, reached over 1.9 million tons.
During the year the Company made several small acquisitions within existing
geographic areas, none of which were significant to the overall operations of
the Company. In the fourth quarter a new shredder in Jacksonville, Florida and a
new shear in Odessa, Texas came online. The Division restructured its management
into five autonomous profit centers, which should provide better coordination of
processing equipment, personnel, marketing strength, sourcing and management.
MARKETING AND TRADING
Revenues for the Marketing and Trading segment increased 4%, and operating
income rose 17% over the prior year. This was a remarkable performance given the
demise of traditional Far East markets and a higher LIFO credit in the previous
year. Most of the Asian markets did a complete
S-7
<PAGE> 8
reversal and induced a shift in trade flows. Purchases from new sources in the
Far East increased significantly while sales were sharply reduced. Shipments
into North America were brisk for most product lines and business in Europe
increased.
Operating profits from steel marketing and distribution increased; however,
profitability in steel trading decreased because of reduced volume and margins.
Nonferrous metal product tonnage increased, particularly in semi-finished
aluminum products. Activity for ores, minerals and industrial materials
continued solid; meanwhile, new marketing channels were added.
S-8
<PAGE> 9
BUSINESS
The following description of the Company's business is qualified in its
entirety by and should be read together with the more detailed information and
financial statements incorporated by reference in the Prospectus.
The Company considers its businesses to be organized into three segments:
(i) Manufacturing, (ii) Recycling, and (iii) Marketing and Trading. The
Company's activities are primarily concerned with metals related activities. See
the Consolidated Financial Statements incorporated by reference in the
Prospectus for additional information concerning these segments.
CMC was incorporated in 1946 in Delaware as a successor to a secondary
metals recycling business that had been in existence since approximately 1915.
The Company maintains executive offices at 7800 Stemmons Freeway, Dallas, Texas
75247 (telephone 214/689-4300). The terms "Company" or "CMC" as used herein
include Commercial Metals Company and its consolidated subsidiaries.
THE MANUFACTURING SEGMENT
The Manufacturing segment is the Company's dominant and most rapidly
expanding segment in terms of assets employed, capital expenditures, operating
profit and number of employees. It consists of two entities, the CMC Steel Group
and the Howell Metal Company subsidiary, a manufacturer of copper tubing. The
Steel Group is by far the more significant entity in this segment, with
subsidiaries operating four steel minimills, 20 steel fabricating plants, four
steel joist manufacturing plants, four fence post manufacturing plants, eight
metals recycling plants, a heat treating plant, a railcar rebuilding facility,
12 warehouse stores, which sell supplies and equipment to the concrete
installation trade, an industrial products supply company and a rail salvage
company.
The Company endeavors to operate all of its minimills at full capacity in
order to minimize product costs. Increases in capacity and productivity are
continuously emphasized through both operating and capital improvements. The
steel minimill business is capital intensive, with substantial capital
expenditures required on a regular basis to remain competitive as a low cost
producer. Over the past three fiscal years, approximately $173 million, or 72%,
of the Company's total capital expenditures have been for minimill projects.
This emphasis on productivity improvements is reflected in a generally increased
number of tons of steel melted, rolled and shipped from the minimills during
each of the last five years and three months ended November 30, 1998 as follows:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
NOVEMBER 30, NOVEMBER 30, FISCAL FISCAL FISCAL FISCAL FISCAL
1998 1997 1998 1997 1996 1995(1) 1994
------------ ------------ ------ ------ ------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Tons Melted.................... 475 458 1,932 1,755 1,561 1,532 1,122
Tons Rolled.................... 370 402 1,693 1,581 1,477 1,487 1,207
Tons Shipped................... 419 522 2,008 1,926 1,730 1,531 1,247
</TABLE>
- ---------------
(1) Includes SMI-South Carolina, which was acquired in November, 1994.
The Company's largest steel minimill, SMI-Texas, is located at Seguin,
Texas, near San Antonio. SMI-Texas manufactures steel reinforcing bars, angles,
rounds, channels, flats, and special sections used primarily in highways,
reinforced concrete structures and manufacturing. This minimill has been
continually modernized and has a very broad product line.
SMI-Alabama, a subsidiary of CMC that owns and operates a steel minimill in
Birmingham, Alabama, was acquired in 1983. A substantial program to modernize
and improve productivity at SMI-Alabama was implemented, with over $121 million
of capital expenditures from acquisition through fiscal 1998.
S-9
<PAGE> 10
SMI-Alabama manufactures primarily larger size products than SMI-Texas,
such as mid-size structurals, including angles, channels, up to eight inch wide
flange beams and special bar quality rounds and flats.
SMI-South Carolina has an annual melting capacity of approximately 550,000
tons and rolling capacity of approximately 350,000 tons. Reinforcing bar is
SMI-South Carolina's primary product line. In July, 1997, the Company began a
$100 million capital expenditure, the largest single project in the Company's
history, to replace SMI-South Carolina's existing rolling mill with a new
state-of-the-art rolling mill. The new rolling mill will have a capacity of over
700,000 tons with a substantially broader product line and is expected to be
completed by the end of March 1999.
The SMI-Texas, SMI-Alabama and SMI-South Carolina mills consist of melt
shops with electric arc furnaces that melt the steel scrap, continuous casting
facilities to shape the molten metal into billets, reheating furnaces, rolling
mills, mechanical cooling beds, finishing facilities and supporting facilities.
The mills utilize both a Company-owned fleet of trucks and private haulers to
transport finished products to customers and Company-owned fabricating shops.
Mill capacity at SMI-Texas and SMI-Alabama is approximately 900,000 and 600,000
tons per year melted, respectively.
The primary raw material for SMI-Texas, SMI-Alabama and SMI-South Carolina
is secondary (scrap) ferrous metal purchased primarily from suppliers generally
within a 300 mile radius of each mill. A portion of the ferrous raw material,
generally less than half, is supplied from Company-owned recycling plants. The
supply of scrap is believed to be adequate to meet future needs, but has
historically been subject to significant price fluctuations. All three of these
mills consume large amounts of electricity and natural gas, both of which are
believed to be readily available at competitive prices.
Operations began in 1987 at a fourth, much smaller mill located near
Magnolia, Arkansas, SMI-Arkansas. No melting facilities are located at
SMI-Arkansas, because this mill utilizes as its raw material rail salvaged from
abandoned railroads for rerolling and, on occasion, billets from Company
minimills or other suppliers. The rail or billets are heated in a reheat furnace
and processed on a rolling mill and finished at facilities similar to, but on a
smaller scale, than the other mills. SMI-Arkansas' finished product is primarily
metal fence post stock, small diameter reinforcing bar and sign posts with some
high quality round and flat products being rolled. Fence post stock is
fabricated into metal fence posts at Company-owned facilities at the Magnolia
mill site, San Marcos, Texas, Brigham City, Utah, and West Columbia, South
Carolina. Because this mill does not include melting facilities, it is dependent
on an adequate supply of competitively priced billets or used rail, the
availability of which fluctuates with the pace of railroad abandonments, rate of
rail replacement by railroads and demand for used rail from domestic and foreign
rail rerolling mills. Capacity at SMI-Arkansas is approximately 150,000 tons per
year.
The Steel Group's downstream processing facilities are engaged in the
fabrication of reinforcing and structural steel, steel warehousing, joist
manufacturing, fence post manufacturing and railcar repair and rebuilding. Steel
fabrication capacity now exceeds 850,000 tons. Steel for fabrication may be
obtained from unrelated vendors as well as Company owned mills. Fabrication
activities are conducted at various locations in Texas in the cities of
Beaumont, Buda (near Austin), Corpus Christi, Dallas, Houston, San Marcos,
Seguin, Victoria, and Waco, as well as Baton Rouge and Slidell, Louisiana;
Magnolia and Hope, Arkansas; Brigham City, Utah; Starke, Florida and Fallon,
Nevada. The Owen acquisition in fiscal year 1995 added fabrication facilities in
Cayce, Columbia, and Taylors, South Carolina; Whitehouse, Florida;
Lawrenceville, Georgia; Gastonia, North Carolina and Fredericksburg, Virginia.
Fabricated steel products are used primarily in the construction of commercial
and non-commercial buildings, industrial plants, power plants, highways, arenas,
stadiums, and dams. Sales of fabricated steel are generally made in response to
bid solicitation from construction contractors or owners on a competitive bid
basis and less frequently on a negotiated basis. The SMI-Owen structural steel
operations have historically been active in large projects such as high rise
office towers, stadiums, convention centers and hospitals.
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<PAGE> 11
Safety Railway Service, located in Victoria, Texas, repairs, rebuilds and
provides custom maintenance with some manufacturing of railroad freight cars
owned by railroad companies and private industry. That work is obtained
primarily on a bid and contract basis and may include maintenance of the cars.
During 1998, a second location operated by Safety Railway Service in Tulsa,
Oklahoma, was closed. Secondary metals recycling plants in Austin, Texas, and at
the SMI-Texas mill in Seguin, Texas, and Cayce, South Carolina, together with
five smaller feeder facilities nearby, operate as part of the Steel Group due to
the predominance of secondary ferrous metals sales to the nearby SMI minimills.
The Cayce recycling plant installed and began operating a new automobile
shredder during 1997 at a cost of approximately $5 million and the Seguin
recycling facility began operating a new automobile shredder in late 1998 at a
cost of approximately $9 million. These recycling plants have an aggregate
annual capacity in excess of 400,000 tons.
The joist manufacturing facility, SMI Joist Company, headquartered in Hope,
Arkansas, manufactures steel joists and decking for roof supports at locations
in Hope, Arkansas, Starke, Florida, Cayce, South Carolina and Fallon, Nevada
using steel obtained primarily from the Steel Group's minimills. Joist consumers
are typically construction contractors or large chain store owners. Joists are
generally made to order and sales, which may include custom design and
fabrication, are primarily obtained on a competitive bid basis.
The Company sells concrete related supplies including the sale or rental of
equipment to the concrete installation trade at eleven warehouse locations in
Texas and one new location in Atlanta, Georgia. This business operates under the
Shepler's name. A smaller operation which emphasizes a broader industrial
product supply is located in Columbia, South Carolina.
In January 1997, the operating assets of Allegheny Heat Treating, Inc.
("AHT"), of Chicora, Pennsylvania, were purchased. AHT is the Steel Group's
entry into the steel heat treating business. AHT performs heat treating on a
tolling basis and works closely with SMI-Alabama and other mills that sell
specialized heat treated steel for customer specific use, primarily in original
or special equipment manufacturing. AHT's operating capacity is approximately
30,000 tons per year.
The copper tube minimill operated by Howell Metal Company is located in New
Market, Virginia. It manufactures copper water, air conditioning and
refrigeration tubing in straight lengths and coils for use in commercial,
industrial and residential construction. Its customers, largely equipment
manufacturers and wholesale plumbing supply firms, are located primarily east of
the Mississippi River. High quality copper scrap supplemented occasionally by
virgin copper ingot, is the raw material used in the melting and casting of
billets. The scrap is readily available subject to rapid price fluctuations
generally related to the price or supply of virgin copper. A small portion of
the scrap is supplied by the Company's metal recycling yards. Howell's
facilities include melting, casting, piercing, extruding, drawing, finishing and
other departments. Capacity is approximately 55 million pounds per year. Demand
for copper tube is dependent mainly on the level of new residential construction
and renovation.
No single customer purchases ten percent or more of the Manufacturing
segment's production. The nature of certain stock products sold in the
Manufacturing segment are, with the exception of the steel fabrication and joist
jobs, not characteristic of a long lead time order cycle. Orders for other stock
products are generally filled promptly from inventory or near term production.
As a result, the Company does not believe backlog levels are a significant
factor in evaluating most operations. Backlog in the CMC Steel Group at fiscal
1998 year-end was approximately $300.2 million. Backlog at fiscal 1997 year-end
was approximately $261.5 million.
THE RECYCLING SEGMENT
The Recycling segment is engaged in processing secondary (scrap) metals for
further recycling into new metal products. This segment consists of the
Company's 39 secondary metals processing division's recycling plants (excluding
eight such facilities operated by the CMC Steel Group as a part of the
Manufacturing segment). During the past fiscal year the secondary metals
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<PAGE> 12
division purchased operating assets of recycling facilities in Houston, Texas,
Joplin, Missouri, Miami, Oklahoma and Frontenac and Independence, Kansas. In
addition the operating assets and inventory of three automobile salvage yards
located in Ocala, Leesburg and Gainesville, Florida, were purchased in 1998 and
constitute the Recycling division's entry into the automobile salvage business.
The Company's metal recycling plants purchase ferrous and nonferrous
secondary or scrap metals, processed and unprocessed, in a variety of forms.
Sources of metals for recycling include manufacturing and industrial plants,
metal fabrication plants, electric utilities, machine shops, factories,
railroads, refineries, shipyards, ordinance depots, demolition businesses,
automobile salvage and wrecking firms. Numerous small secondary metals
collection firms are also, in the aggregate, major suppliers.
These plants processed and shipped approximately 1.47 million tons of scrap
metal during fiscal 1998, up from 1.37 million the prior year. Ferrous metals
comprised the largest tonnage of metals recycled at approximately 1.28 million
tons, approximately 126,000 tons more than the prior year, followed by
approximately 188,055 tons compared to 212,000 in fiscal 1997, of nonferrous
metals, primarily aluminum, copper and stainless steel. The Company also
purchased and sold an additional 187,000 tons of metals processed by other metal
recycling facilities. With the exception of precious metals, practically all
metals capable of being recycled are processed by these plants. The CMC Steel
Group's eight metals recycling facilities processed and shipped an additional
360,000 tons of primarily ferrous scrap metal during fiscal 1998.
The metal recycling plants generally consist of an office and warehouse
building equipped with specialized equipment for processing both ferrous and
nonferrous metal. Most of the larger plants are equipped with scales, shears,
baling presses, briquetting machines, conveyors and magnetic separators. Two
locations have extensive equipment for mechanically processing large quantities
of insulated wire to segregate metallic content. All ferrous processing centers
are equipped with either presses, shredders or hydraulic shears, locomotive and
crawler cranes and railway tracks to facilitate shipping and receiving. The
segment operates six large shredding machines capable of pulverizing obsolete
automobiles or other ferrous metal scrap, including operation of a sixth
shredder which began during June 1998 in Jacksonville, Florida. Two additional
shredders are operated by the Manufacturing segment's recycling facilities. A
typical recycling plant includes several acres of land used for receiving,
sorting, processing and storage of metals. Several recycling plants devote a
small portion of their site or a nearby location for display and sales of metal
products considered reusable for their original purpose.
The automobile salvage operations in Gainesville, Ocala and Leesburg,
Florida, assist in the supply of crushed auto bodies, an important feed stock,
to the new Jacksonville shredder. These operations purchase wrecked or
inoperable motor vehicles at prices related to estimated recovery value of
usable parts prior to ultimate sale to scrap metal processors, usually shredding
facilities. The operating assets of scrap processing facilities in Joplin,
Missouri, Miami, Oklahoma and Independence and Frontenac, Kansas, acquired
during 1998 extend the geographic area served by the Company's Springfield,
Missouri facility.
Recycled metals are sold to steel mills and foundries, aluminum sheet and
ingot manufacturers, brass and bronze ingot makers, copper refineries and mills,
brass mills, secondary lead smelters, specialty steel mills, high temperature
alloy manufacturers and other consumers. Sales of material processed through the
Company's recycling plants are coordinated through the Recycling segment's
office in Dallas. Export sales are negotiated through the Company's network of
foreign offices as well as the Dallas office.
No single source of material or customer of the Recycling segment
represents more than ten percent of the Company's purchases or revenues. The
Recycling segment competes with other secondary processors and primary
nonferrous metals producers, both domestic and foreign, for sales of nonferrous
materials. Consumers of nonferrous scrap metals often have the capability to
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utilize primary or "virgin" ingot processed by mining companies interchangeably
with secondary metals. The prices for nonferrous scrap metals are normally
closely related to but generally less than, the prices of the primary or
"virgin" metal producers. Ferrous scrap is the primary raw material for electric
arc furnaces such as those operated by the Company's steel minimills. The need
for low residual elements in the melting process have recently caused some
minimills to supplement purchases of scrap metal with direct reduced iron and
pig iron for certain product lines.
THE MARKETING AND TRADING SEGMENT
The Marketing and Trading segment buys and sells, through a network of
trading offices located around the globe, steel, nonferrous metals, specialty
metals, chemicals, industrial minerals, ores, concentrates, ferroalloys, and
other basic industrial materials. The products are purchased primarily from
producers in domestic and foreign markets. On occasion these materials are
purchased from trading companies or industrial consumers with surplus supplies.
Long-term contracts, spot market purchases and trading or barter transactions
are all utilized to obtain materials. A large portion of these transactions
involve fabricated semi-finished or finished product.
Customers for these materials include industrial concerns such as the
steel, nonferrous metals, metal fabrication, chemical, refractory and
transportation sectors. Sales are generally made directly to consumers through
and with coordination of offices in Dallas; New York City; Englewood Cliffs, New
Jersey; Los Angeles; Hurstville, near Sydney, Australia; Singapore; Zug,
Switzerland; Hong Kong; Surrey and Sandbach, United Kingdom; and Bergisch
Gladbach, Germany. The Company also maintains representative offices in Moscow,
Seoul, and Beijing, as well as agents in other significant international
markets. These offices form a network for the exchange of information on the
materials marketed by the Company as well as servicing sources of supply and
purchasers. In most transactions the Company acts as principal and often as a
marketing representative. The Company utilizes agents when appropriate and
occasionally acts as broker. The Company participates in transactions in
practically all major markets of the world where trade by American-owned
companies is permitted.
This segment focuses on the marketing of physical products as contrasted to
traders of commodity futures contracts who frequently do not take delivery of
the commodity. Sophisticated global communications and the development of easily
accessible, although not always accurate, quoted market prices for many products
has resulted in the Company emphasizing creative service functions for both
sellers and buyers. Actual physical market pricing and trend information, as
contrasted with sometimes more speculative metal exchange market information,
technical information and assistance, financing, transportation and shipping
(including chartering of vessels), storage, warehousing, just in time delivery,
insurance, hedging and the ability to consolidate smaller purchases and sales
into larger, more cost efficient transactions are examples of the services
offered. The Company attempts to limit its exposure to price fluctuations by
offsetting purchases with concurrent sales and entering into foreign exchange
contracts as hedges of trade receivables and payables denominated in foreign
currencies. The Company does not, as a matter of policy, speculate on changes in
the markets and hedges only firm commitments, not anticipated transactions.
During the last fiscal year over 1.4 million tons of steel products were sold by
the Marketing and Trading segment. The Australian operations maintain three
warehousing facilities for just in time delivery of steel and industrial
products and operate a heat treating service for special steel products.
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<PAGE> 14
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Debt Securities set forth
in the Prospectus, to which description reference is hereby made. Certain terms
not defined in this description are defined in the Prospectus.
GENERAL
The 6.75% Notes due February 15, 2009 (the "Notes") will be limited to
$100,000,000 aggregate principal amount and will mature on February 15, 2009.
The Notes will be issued only in the form of one or more Global Securities (as
defined below) in minimum denominations of $100,000 and integral multiples of
$1,000 in excess thereof. See "Book-Entry Notes" below. The Notes will be
redeemable at the Company's option prior to maturity as set forth below under
"Optional Redemption" and are not entitled to any sinking fund. The Notes will
be unsecured and unsubordinated obligations of the Company and will rank on a
parity with all other unsecured and unsubordinated debt of the Company.
INTEREST
The Notes will bear interest at the rate set forth on the cover page of
this Prospectus Supplement from February 23, 1999, or the most recent interest
payment date to which interest has been paid or provided for, payable
semi-annually on February 15 and August 15 of each year, beginning August 15,
1999, to the person in whose name a Note (or any predecessor Note) is registered
at the close of business on the February 1 or August 1, as the case may be, next
preceding such interest payment date.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, at any time in
whole, or from time to time in part, upon not less than 30 and not more than 60
days' notice mailed to each holder of Notes to be redeemed at the holder's
address appearing in the Note register, at a price equal to 100% of the
principal amount thereof plus accrued interest to the redemption date (subject
to the right of holders of record on the relevant record date to receive
interest due on an interest payment date that is on or prior to the redemption
date) plus a Make-Whole Premium, if any (the "Redemption Price"). In no event
will the Redemption Price ever be less than 100% of the principal amount of the
Notes plus accrued interest to the redemption date.
The amount of the Make-Whole Premium with respect to any Note (or portion
thereof) to be redeemed will be equal to the excess, if any, of:
(1) the sum of the present values, calculated as of the redemption
date, of:
(a) each interest payment that, but for such redemption, would have
been payable on the Note (or portion thereof) being redeemed on each
interest payment date occurring after the redemption date (excluding any
accrued interest for the period prior to the redemption date); and
(b) the principal amount that, but for such redemption, would have
been payable at the final maturity of the Note (or portion thereof)
being redeemed;
over
(2) the principal amount of the Note (or portion thereof) being
redeemed.
The present value of interest and principal payments referred to in clause
(1) above will be determined in accordance with generally accepted principles of
financial analysis. Such present values will be calculated by discounting the
amount of each payment of interest or principal from the
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<PAGE> 15
date that each such payment would have been payable, but for the redemption, to
the redemption date at a discount rate equal to the Treasury Yield (as defined
below) plus 25 basis points.
The Make-Whole Premium will be calculated by an independent investment
banking institution of national standing appointed by the Company. If the
Company fails to make such appointment at least 45 business days prior to the
redemption date, or if the institution so appointed is unwilling or unable to
make such calculation, Goldman, Sachs & Co. ("Goldman Sachs") will make such
calculation. If Goldman Sachs is unwilling or unable to make such calculation,
an independent investment banking institution of national standing appointed by
the trustee will make such calculation.
For purposes of determining the Make-Whole Premium, "Treasury Yield" means
a rate of interest per annum equal to the weekly average yield to maturity of
United States Treasury Notes that have a constant maturity that corresponds to
the remaining term to maturity of the Notes, calculated to the nearest 1/12 of a
year (the "Remaining Term"). The Treasury Yield will be determined as of the
third business day immediately preceding the applicable redemption date.
The weekly average yields of United States Treasury Notes will be
determined by reference to the most recent statistical release published by the
Federal Reserve Bank of New York and designated "H.15(519) Selected Interest
Rates" or any successor release (the "H.15 Statistical Release"). If the H.15
Statistical Release sets forth a weekly average yield for United States Treasury
Notes having a constant maturity that is the same as the Remaining Term, then
the Treasury Yield will be equal to such weekly average yield. In all other
cases, the Treasury Yield will be calculated by interpolation, on a
straight-line basis, between the weekly average yields on the United States
Treasury Notes that have a constant maturity closest to and greater than the
Remaining Term and the United States Treasury Notes that have a constant
maturity closest to and less than the Remaining Term (in each case as set forth
in the H.15 Statistical Release). Any weekly average yields so calculated by
interpolation will be rounded to the nearest 0.01% with any figure of 0.005% or
more being rounded upward. If weekly average yields for United States Treasury
Notes are not available in the H.15 Statistical Release or otherwise, then the
Treasury Yield will be calculated by interpolation of comparable rates selected
by the independent investment banking institution.
If less than all of the Notes are to be redeemed, the trustee will select
the Notes to be redeemed by such method as the trustee deems fair and
appropriate. The trustee may select for redemption Notes and portions of Notes
in amounts of $1,000 or whole multiples of $1,000.
The Notes will not be entitled to the benefit of any sinking fund or other
mandatory redemption provisions.
BOOK-ENTRY NOTES
The Notes will be issued in whole or in part in the form of one or more
permanent Global Securities deposited with, or on behalf of, The Depositary
Trust Company, as the Depositary (the "Depositary"), and registered in the name
of a nominee of the Depositary. Except under the limited circumstances described
in the Prospectus under "Description of Debt Securities -- Book-Entry Debt
Securities," owners of beneficial interests in Global Securities will not be
entitled to physical delivery of Notes in certificated form. Global Securities
may not be transferred except as a whole by the Depositary to a nominee of the
Depositary or to a successor of the Depositary of its nominee.
The Depositary has advised the Company that the Depositary is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Securities Exchange Act of
1934. The Depositary was created to hold securities of its participants and to
facilitate the clearance and settlement of securities transactions, such as
transfers and pledges, among its participants in such securities
S-15
<PAGE> 16
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movements of securities certificates. The
Depositary's participants include securities brokers and dealers (including the
Underwriters), banks, trust companies, clearing corporations, and certain other
organizations, some of whom (and/or their representatives) own the Depositary.
Access to the Depositary's book-entry system is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly. The
rules applicable to the Depositary and its participants are on file with the
Securities and Exchange Commission.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. So long as the Notes are in the form of Book-Entry Notes, all
payments of principal and interest will be made by the Company in immediately
available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. In contrast, the Notes
are expected to trade in the Depositary's Same-Day Funds Settlement System until
maturity, and secondary market trading activity in the Notes will therefore be
required by the Depositary to settle in immediately available funds. No
assurance can be given as to the effect, if any, of settlement in immediately
available funds on trading activity in the Notes.
S-16
<PAGE> 17
UNDERWRITING
The Company and the Underwriters for the Notes named below have entered
into an underwriting agreement and a pricing agreement with respect to the
Notes. Subject to certain conditions, each Underwriter has severally agreed to
purchase the principal amount of Notes indicated in the following table:
<TABLE>
<CAPTION>
Principal Amount
Underwriter of Notes
----------- ----------------
<S> <C>
Goldman, Sachs & Co. ..................................... $ 55,000,000
Chase Securities Inc. .................................... 11,250,000
Lehman Brothers Inc. ..................................... 11,250,000
Morgan Stanley & Co. Incorporated......................... 11,250,000
NationsBanc Montgomery Securities LLC..................... 11,250,000
------------
Total........................................... $100,000,000
============
</TABLE>
Notes sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this Prospectus
Supplement. Any Notes sold by the Underwriters to securities dealers may be sold
at a discount from the initial public offering price of up to 0.40% of the
principal amount of the Notes. Any such securities dealers may resell any Notes
purchased from the Underwriters to certain other brokers or dealers at a
discount from the initial public offering price of up to 0.25% of the principal
amount of the Notes. If all the Notes are not sold at the initial offering
price, the Underwriters may change the offering price and the other selling
terms.
The Notes are a new issue of securities with no established trading market.
The Company has been advised by the Underwriters that the Underwriters intend to
make a market in the Notes but are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.
In connection with the offering (the "Offering"), the Underwriters may
purchase and sell Notes in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the Underwriters of a greater
number of Notes than they are required to purchase in the Offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the Notes while the
Offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discounts received by it because the representatives have repurchased Notes sold
by or for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the Notes. As a result, the price of the Notes may be
higher than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the Underwriters at any
time. These transactions may be effected in the over-the-counter market or
otherwise.
The Company estimates that its share of the total expenses of the Offering,
excluding underwriting discounts and commissions, will be approximately
$225,000.
The Company has agreed to indemnity the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
In the ordinary course of their respective businesses, the Underwriters and
their affiliates have engaged and may in the future engage in commercial banking
and investment banking transactions
S-17
<PAGE> 18
with the Company and its affiliates. The Chase Manhattan Bank, the Trustee, is
an affiliate of Chase Securities Inc. and is a lender to the Company under
certain short term bank facilities. Bank of America National Trust and Savings
Association, which is an affiliate of NationsBanc Montgomery Securities LLC, is
also a lender to the Company. Each of The Chase Manhattan Bank and Bank of
America National Trust and Savings Association will receive a portion of the
amounts repaid with the net proceeds from the sale of the Notes. See "Use of
Proceeds." Because more than 10% of the net proceeds from the sale of the Notes
will be paid to affiliates of members of the National Association of Securities
Dealers, Inc. (the "NASD") who are participating in the sale of the Notes, the
sale of the Notes is being made pursuant to Rule 2710(c)(8) of the NASD Conduct
Rules.
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<PAGE> 19
<TABLE>
<S> <C> <C>
$200,000,000
LOGO
LOGO
</TABLE>
Debt Securities
------------------------
Commercial Metals Company may from time to time issue up to $200,000,000
aggregate principal amount of Debt Securities. The accompanying Prospectus
Supplement will specify the terms of the Debt Securities.
Commercial Metals Company may sell these securities to or through
underwriters, and also to other purchasers or through agents. Goldman, Sachs &
Co., Chase Securities Inc., Lehman Brothers Inc., Morgan Stanley & Co.
Incorporated and NationsBanc Montgomery Securities, LLC may be some of such
underwriters. The names of the underwriters will be set forth in the
accompanying Prospectus Supplement.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER
NATIONSBANC MONTGOMERY SECURITIES LLC
------------------------
Prospectus dated February 9, 1999.
<PAGE> 20
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission ("SEC"). You may read
and copy any reports, proxy statements and other information filed by us at the
SEC's Public Reference Room at (a) 450 Fifth Street, N.W., Washington, D.C.
20549; (b) Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and (c) Seven World Trade Center, Suite 1300, New York, New York
10048. You can also request copies of these documents, upon payment of a
duplicating fee, by writing to the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the SEC's Public
Reference Room. Our SEC filings are also available to the public on the SEC's
Internet site (http://www.sec.gov).
We have filed a registration statement on Form S-3 with the SEC covering
the securities described in this prospectus. For further information with
respect to us and those securities, you should refer to our registration
statement and its exhibits. We have summarized certain key provisions of
contracts and other documents that we refer to in this prospectus. Because a
summary may not contain all the information that is important to you, you should
review the full text of the document. We have included copies of these documents
as exhibits to our registration statement.
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to another document that we filed with the SEC. The information
incorporated by reference is an important part of this prospectus, and
information that we file later with the SEC will automatically update and
supersede this information. We incorporate by reference the documents listed
below and any future filings made with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), until we sell all of the securities.
- Our Annual Report to Shareholders, Form 10-K for the fiscal year ended
August 31, 1998; and
- Our Quarterly Report on Form 10-Q for the quarter ended November 30,
1998.
You may request a copy of these filings at no cost, by writing or
telephoning us at 7800 Stemmons Freeway, Dallas, Texas 75247, telephone (214)
689-4300, attention: Secretary.
You should rely only on the information contained or incorporated by
reference in this prospectus, any prospectus supplement or any pricing
supplement. We have not authorized anyone to provide you with any other
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information in this
prospectus, any accompanying prospectus supplement or any document incorporated
by reference is accurate as of any date other than the date on the front of the
document.
THE COMPANY
Commercial Metals Company ("CMC" or the "Company") manufactures, recycles
and markets steel and metal products. Steel and steel-related products represent
over 75% of our business. During fiscal 1998, we derived approximately 79% of
our operating profit from our Manufacturing segment, approximately (1%) from our
Recycling segment, and approximately 22% from our Marketing and Trading segment.
Our Manufacturing segment includes four steel minimills, 20 steel
fabrication plants, four steel joist plants, four fence post manufacturing
plants, eight metals recycling plants, a heat treating plant, a railcar
rebuilding facility, 12 concrete related product warehouses, an industrial
products supply company, a rail salvage company, and a copper tube mill. Our
steel manufacturing capacity of approximately 2 million tons includes
reinforcing bars, light and mid-size structurals, angles,
2
<PAGE> 21
channels, beams, special bar quality rounds and flats, squares and special
sections used in the construction, manufacturing, steel fabrication and
warehousing, and original equipment manufacturing industries. Our steel
fabrication capacity is over 800,000 tons. Our copper tube mill with 55 million
pounds of capacity manufactures copper water tube and air conditioning and
refrigeration tubing.
Our Company's Recycling segment is one of the largest processors of scrap
nonferrous metals and one of the largest regional processors of ferrous metals
in the United States. Our recycling plants processed and shipped 1.9 million
tons of scrap metal in fiscal 1998. Recycled metals provide substantial savings
in energy compared to producing metal from virgin raw materials.
Our Marketing and Trading segment buys and sells steel, primary and
secondary metals and industrial raw materials through a global network of
offices which provide technical information, financing, chartering, storage,
insurance and hedging. We do not, as a matter of policy, speculate on changes in
the commodities markets. This segment sold over 1.4 million tons of steel
products in fiscal 1998.
Our principal executive offices are located at 7800 Stemmons Freeway,
Dallas, Texas 75247, and our telephone number is (214) 689-4300.
USE OF PROCEEDS
Except as may be set forth in an applicable Prospectus Supplement
accompanying this Prospectus, the net proceeds from the sale of the Debt
Securities offered hereby will be used to refinance certain debt and for other
general corporate purposes. Pending such applications, the funds may be used to
reduce short-term borrowings or may be invested in short-term marketable
securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED AUGUST 31, NOVEMBER 30,
- ---------------------------- ------------
1998 1997 1996 1995 1994 1998 1997
- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
3.9 4.3 4.9 4.2 4.2 3.4 3.6
</TABLE>
For purposes of computing the ratio of earnings to fixed charges, earnings
are divided by fixed charges. For this purpose, earnings consist of net earnings
plus income taxes, interest expense, such portion of rent expense as is
representative of the interest factor and amortization expense of capitalized
interest. Fixed charges consist of interest expense, such portion of rent
expense and capitalized interest. Such portion of rent expense, capitalized
interest and amortization of capitalized interest amounted to $3.2, $1.6 and
$0.4 million in fiscal 1998, $2.9, $0.8 and $0.5 million in fiscal 1997, $2.6,
$0.3 and $0.5 million in fiscal 1996, $2.7, $0.1 and $0.6 million in fiscal 1995
and $2.0, $1.2 and $0.4 million in fiscal 1994, and amounted to $0.7, $1.2 and
$0.1 million and $0.7, $0.1 and $0.1 million in the first three months of fiscal
1999 and 1998, respectively.
3
<PAGE> 22
DESCRIPTION OF DEBT SECURITIES
The Debt Securities are to be issued under an Indenture, dated as of July
31, 1995 (the "Indenture"), between the Company and The Chase Manhattan Bank, as
Trustee (the "Trustee"). A copy of such Indenture is filed as an exhibit to the
Registration Statement. The following statements relating to the Debt Securities
and the Indenture are summaries of provisions contained therein and do not
purport to be complete. The provisions of the Indenture referred to in the
following summaries are incorporated herein by reference and the summaries are
qualified in their entirety thereby. Capitalized terms not otherwise defined
herein shall have the respective meanings given to them in the Indenture.
Section numbers set forth below refer to provisions of the Indenture.
The following sets forth certain general terms and provisions of the Debt
Securities offered hereby. The particular terms of the Debt Securities offered
by any Prospectus Supplement will be described in such Prospectus Supplement
relating to the Debt Securities offered thereby.
GENERAL
The Debt Securities will be unsecured obligations of the Company and will
rank on a parity with all other unsecured and unsubordinated debt of the
Company.
The Indenture does not limit the amount of the Debt Securities that may be
issued thereunder and provides that Debt Securities may be issued thereunder
from time to time in one or more series. This Prospectus or the Prospectus
Supplement will describe the following terms, as applicable, of each series of
Debt Securities: (1) the title of the Debt Securities; (2) any limit on the
aggregate principal amount of the Debt Securities; (3) the date or dates on
which the Debt Securities will mature; (4) the rate or rates (which may be fixed
or variable) at which the Debt Securities will bear interest, if any, and the
date or dates from which such interest will accrue; (5) the dates on which such
interest, if any, will be payable and the Regular Record Dates for such Interest
Payment Dates; (6) any mandatory or optional sinking fund or analogous
provisions; (7) the price at which, the periods within which, and the terms and
conditions upon which the Debt Securities may, pursuant to any optional or
mandatory redemption provisions, be redeemed at the option of the Company; (8)
the terms and conditions upon which the Debt Securities may be repayable prior
to final maturity at the option of the Holder thereof (which option may be
conditional); (9) the portion of the principal amount of the Debt Securities, if
other than the principal amount thereof, payable upon acceleration of maturity
thereof; (10) certain Events of Default under the Indenture; (11) if other than
in United States dollars, the currency or currencies, including composite
currencies, of payment of principal of and premium, if any, and interest on the
Debt Securities (and federal income tax consequences and other special
considerations applicable to any such Debt Securities denominated in a currency
or currencies other than United States dollars); (12) any index used to
determine the amount of payments of principal of and premium, if any, and
interest, if any, on the Debt Securities; (13) if the Debt Securities will be
issuable only in the form of a Global Security as described under "Book-Entry
Debt Securities," the Depositary or its nominee with respect to the Debt
Securities and the circumstances under which the Global Security may be
registered for transfer or exchange in the name of a Person other than the
Depositary or its nominee; and (14) any other specific terms of the Debt
Securities. (Section 301)
Unless otherwise indicated in the Prospectus Supplement relating to Debt
Securities, principal of and premium, if any, and interest, if any, on the Debt
Securities will be payable, and transfers thereof will be registrable, at the
office or agency of the Trustee in New York City, New York, provided that, at
the option of the Company, payment of interest may be made by check mailed to
the address of the Person entitled thereto as it appears in the Security
Register. (Sections 301, 305 and 1002) Any payment of principal and premium, if
any, and interest, if any, required to be made on an Interest Payment Date,
Redemption Date or at Stated Maturity which is not a Business Day at any Place
of Payment need not be made at such Place of Payment on such day, but may be
made on the next succeeding Business Day with the same force and effect as if
made on the Interest Payment
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Date, Redemption Date or at Stated Maturity, as the case may be, and no interest
shall accrue for the period from and after such Interest Payment Date,
Redemption Date or Stated Maturity. (Section 113)
Unless otherwise indicated in the Prospectus Supplement relating to the
Debt Securities of any series, the Debt Securities will be issued only in
registered form, without coupons, in denominations of $100,000 or any integral
multiple thereof. (Section 302) No service charge will be made for any transfer
or exchange of the Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (Section 305)
Debt Securities may be issued under the Indenture as Original Issue
Discount Securities to be offered and sold at a substantial discount from their
stated principal amount. In addition, under proposed Treasury Regulations it is
possible that Debt Securities which are offered and sold at their stated
principal amount would, under certain circumstances, be treated as issued at an
original issue discount for federal income tax purposes. Federal income tax
consequences and other special considerations applicable to any such Original
Issue Discount Securities (or other Debt Securities treated as issued at an
original issue discount) will be described in the Prospectus Supplement relating
thereto. "Original Issue Discount Security" means any security that provides for
an amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof upon the occurrence of an
Event of Default and the continuation thereof. (Section 101)
BOOK-ENTRY DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more registered global securities (the "Global Securities"). The
specific terms of the depositary arrangement with respect to any Debt Securities
of any series will be described in the Prospectus Supplement relating to such
series. The Company anticipates that the following provisions will apply to all
depositary arrangements.
Each Global Security will be deposited with, or on behalf of, a Depositary
identified in the Prospectus Supplement (the "Depositary") and registered in the
name of the Depositary or a nominee thereof. Unless and until it is exchanged in
whole or in part for Debt Securities in certificated form, no Global Security
may be transferred, except as a whole by the Depositary to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary. Debt
Securities in certificated form will not be issued in exchange for Global
Securities, except under the circumstances described herein.
Upon the issuance of a Global Security and the deposit of such Global
Security with the Depositary, the Depositary will credit, on its book-entry
registration and transfer system, the respective principal amounts of the Debt
Securities represented by such Global Security to the accounts of institutions
that have accounts with such Depositary or its nominee ("participants"). The
account to be credited will be designated by any dealers, underwriters or agents
participating in the distribution of such Debt Securities. Ownership of
beneficial interests in a Global Security will be limited to participants or
persons that may hold such interests through participants. Ownership of
beneficial interests in a Global Security will be shown on, and the transfer of
such ownership will be effected only through, records maintained by the
Depositary (with respect to interests of participants) and by participants or
persons that hold through participants (with respect to interests of persons
other than participants). The laws of some states require that certain
purchasers of securities take physical delivery of such securities in
certificated form. Such limits and laws may impair the ability to own or
transfer beneficial interests in a Global Security.
So long as the Depositary or its nominee is the registered owner of a
Global Security, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the Debt Securities represented by such
Global Security for all purposes under the Indenture. Except as
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<PAGE> 24
set forth below, owners of beneficial interests in a Global Security will not be
entitled to have Debt Securities represented by such Global Security registered
in their names, will not receive or be entitled to receive physical delivery of
such Debt Securities in certificated form and will not be considered the owners
or holders thereof under the Indenture. Accordingly, each person owning a
beneficial interest in a Global Security must rely on the procedures of the
Depositary for such Global Security and, if such person is not a participant, on
the procedures of the participant through which such person owns its interest,
to exercise any rights of a holder under the Indenture. The Company understands
that under existing industry practices, if the Company requests any action of
holders or if an owner of a beneficial interest in a Global Security desires to
give or take any action which a holder is entitled to give or take under the
Indenture, the Depositary for such Global Security would authorize the
participants holding the relevant beneficial interests to give or take such
action, and such participants would authorize beneficial owners owning through
such participants to give or take such action or would otherwise act upon the
instructions of beneficial owners holding through them.
Principal and interest payments on Debt Securities represented by a Global
Security registered in the name of the Depositary or its nominee will be made to
the Depositary or its nominee, as the case may be, as the registered owner or
holder of such Global Security. None of the Company, the Trustee or any other
agent of the Company or the Trustee will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in such Global Security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Depositary for any Debt Securities represented
by a Global Security, upon receipt of any payment of principal or interest in
respect of such Global Security, will credit immediately participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of such Global Security as shown on the records of such
Depositary or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in such Global Security held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers registered in "street name," and will be the responsibility of such
participants.
If the Depositary for any Debt Securities represented by a Global Security
is at any time unwilling or unable to continue as depositary, or if at any time
the Depositary ceases to be a clearing agency registered under the Exchange Act,
and a successor depositary is not appointed by the Company within 90 days or if
there shall have occurred and be continuing an Event of Default (as defined in
the Indenture) or an event which, with the giving of notice or lapse of time, or
both, would constitute an Event of Default with respect to such Debt Securities,
then the Company will issue such Debt Securities in certificated form in
exchange for the Global Security representing the Debt Securities. In addition,
the Company may at any time and in its sole discretion determine not to have any
Debt Securities represented by one or more Global Securities and, in such event,
will issue such Debt Securities in certificated form in exchange for the Global
Security representing the Debt Securities. In any such instance, an owner of a
beneficial interest in a Global Security will be entitled to physical delivery
of such Debt Securities in certificated form equal in principal amount to such
beneficial interest and to have such Debt Securities registered in its name.
Unless otherwise specified in the Prospectus Supplement, Debt Securities issued
in certificated form will be issued as registered securities in minimum
denominations of $100,000 and integral multiples of $1,000 in excess thereof.
LIMITATION ON LIENS
The Indenture provides that the Company may not, and may not permit any
Principal Subsidiary of the Company to, incur or suffer to exist any Lien upon
any Principal Property, or upon any shares of stock of any Principal Subsidiary
of the Company (whether such Principal Property or shares
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were owned as of the date of such Indenture or thereafter acquired), to secure
any Debt without making, or causing such Principal Subsidiary to make, effective
provision for securing the Debt Securities issued under such Indenture equally
and ratably with (or prior to) such Debt, unless after giving effect thereto,
the sum of (A) the principal amount of Debt secured by all Liens incurred after
the date of such Indenture and otherwise prohibited by such Indenture and (B)
the Attributable Debt of all Sale and Leaseback Transactions entered into after
the date of such Indenture and otherwise prohibited by such Indenture does not
exceed 10% of Consolidated Net Tangible Assets. The foregoing restrictions will
not apply to Liens existing at the date of such Indenture or to (i) Liens
securing only the Debt Securities issued under such Indenture; (ii) Liens in
favor of only the Company; (iii) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Principal Subsidiary of the Company (but only to the extent such Liens cover
such property); (iv) Liens on property existing immediately prior to the time of
acquisition thereof (and not in anticipation of the financing of such
acquisition); (v) any Lien upon a Principal Property (including any property
that becomes a Principal Property after acquisition thereof) to secure Debt
incurred for the purpose of financing all or any part of the purchase price or
the cost of construction or improvement thereof incurred within 270 days after
the later of the purchase thereof and the completion of construction or
improvements thereon; (vi) Liens to secure Debt incurred to extend, renew,
refinance or refund Debt secured by any Lien referred to in the foregoing
clauses (i) to (v); and (vii) any Lien securing Debt owing by the Company to a
wholly owned Principal Subsidiary of the Company. (Section 1007)
"Attributable Debt" means the present value (discounted at the per annum
rate of interest publicly announced by Bank of America National Trust & Savings
Association as its "Reference Rate" or "Prime Rate", provided, that if Bank of
America National Trust & Savings Association is no longer announcing a Reference
Rate or Prime Rate, the per annum rate of interest shall be the Prime Rate most
recently published in The Wall Street Journal, in either case compounded
monthly) of the obligations for rental payments required to be paid during the
remaining term of any lease of more than 12 months. (Section 101)
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other indebtedness arrangements
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person in accordance with generally accepted
accounting principles. The stated maturity of such obligation, as of any date
(the "measurement date"), shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date after the measurement
date upon which such lease may be terminated by the lessee, at its sole option,
without payment of a penalty. (Section 101)
"Consolidated Net Tangible Assets" means the net book value of all assets
of the Company and its Consolidated Subsidiaries, excluding any amounts carried
as assets for shares of capital stock held in treasury, debt discount and
expense, goodwill, patents, trademarks and other intangible assets, less all
liabilities of the Company and its Consolidated Subsidiaries (except Funded
Debt, minority interests in Consolidated Subsidiaries, deferred taxes and
general contingency reserves of the Company and its Consolidated Subsidiaries),
which in each case would be included on a consolidated balance sheet of the
Company and its Consolidated Subsidiaries as of the date of determination, all
as determined on a consolidated basis in accordance with generally accepted
accounting principles. (Section 101)
"Consolidated Tangible Net Worth" means the total stockholders' equity of
the Company and its Consolidated Subsidiaries, calculated in accordance with
generally accepted accounting principles and reflected on the most recent
balance sheet of the Company, excluding any amounts carried as assets for shares
of capital stock held in treasury, debt discount and expense, goodwill, patents,
trademarks and other intangible assets. (Section 101)
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"Debt" means (without duplication), with respect to any Person, (i) every
obligation of such Person for money borrowed, (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
every reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such Person
and (iv) every obligation of the type referred to in clauses (i) through (iii)
of another Person the payment of which such Person has guaranteed or is
responsible or liable for, directly or indirectly, as obligor, guarantor or
otherwise (but only, in the case of clause (iv), to the extent such Person has
guaranteed or is responsible or liable for such obligations). (Section 101)
"Funded Debt" means (i) all Debt of the Company and each Principal
Subsidiary maturing on, or renewable or extendable at the option of the obligor
to, a date more than one year from the date of the determination thereof, (ii)
Capital Lease Obligations payable on a date more than one year from the date of
the determination thereof, (iii) guarantees, direct or indirect, and other
contingent obligations of the Company and each Principal Subsidiary of the
Company in respect of, or to purchase or otherwise acquire or be responsible or
liable for (through the investment of funds or otherwise), any obligations of
the type described in the foregoing clauses (i) or (ii) of others (but not
including contingent liabilities on customers' receivables sold with recourse),
and (iv) amendments, renewals, extensions and refundings of any obligations of
the type described in the foregoing clauses (i), (ii) or (iii). (Section 101)
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, security interest, lien,
encumbrance, or other security arrangement of any kind or nature whatsoever on
or with respect to such property or assets (including any conditional sale or
other title retention agreement having substantially the same economic effect as
any of the foregoing). (Section 101)
"Principal Property" means any facility (together with the land on which it
is erected and fixtures comprising a part thereof) used primarily for
manufacturing, processing, research, warehousing or distribution, owned or
leased by the Company or a Subsidiary of the Company and having a net book value
in excess of 3% of Consolidated Net Tangible Assets, other than any such
facility or portion thereof which is a pollution control facility financed by
state or local government obligations or is not of material importance to the
total business conducted or assets owned by the Company and its Subsidiaries as
an entirety, or any assets or properties acquired with Net Available Proceeds
(defined below) from a Sale and Leaseback Transaction that are irrevocably
designated by the Company or a Subsidiary as a Principal Property, which
designation shall be made in writing to the Trustee. (Section 101)
"Principal Subsidiary" means any Subsidiary of the Company that owns or
leases a Principal Property or owns or controls stock which under ordinary
circumstances has the voting power to elect a majority of the Board of Directors
of a Principal Subsidiary. (Section 101)
"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any Principal Property that within 12 months
of the start of such lease and after the Reference Date, has been or is being
sold, conveyed, transferred or otherwise disposed of by such Person to such
lender or investor or to any Person to whom funds have been or are to be
advanced by such lender or investor on the security of such property. The term
of such arrangement, as of any date (the "measurement date"), shall end on the
date of the last payment of rent or any other amount due under such arrangement
on or prior to the first date after the measurement date on which such
arrangement may be terminated by the lessee, at its sole option, without payment
of a penalty. "Sale Transaction" means any such sale, conveyance, transfer or
other disposition. The "Reference Date" means, for any property that becomes a
Principal Property, the 270th day after the date of the acquisition, completion
of construction and commencement of operation of such property. (Section 101)
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"Subsidiary of the Company" means any corporation of which the Company
directly or indirectly owns or controls stock which under ordinary circumstances
(not dependent upon the happening of a contingency) has the voting power to
elect a majority of the board of directors of such corporation.
LIMITATION ON FUNDED DEBT OF PRINCIPAL SUBSIDIARIES
The Indenture provides that the Company will not permit any Principal
Subsidiary to incur or assume, directly or indirectly, any Funded Debt unless
immediately after giving effect thereto and the receipt and application of the
proceeds thereof, the aggregate principal amount of all outstanding Funded Debt
of all Principal Subsidiaries other than Funded Debt owing to the Company or
another directly or indirectly wholly-owned Subsidiary does not exceed 30% of
Consolidated Tangible Net Worth. The provisions of this limitation shall not
prevent (i) any Funded Debt of a Principal Subsidiary owing to the Company or
another Principal Subsidiary, (ii) any Funded Debt from a mortgage permitted
under the provisions described in clauses (i) through (vii) in the first
paragraph under "Limitation on Liens," or (iii) any extension, renewal or
refunding in whole or in part (without increase in amount) of any Funded Debt
(a) of a Principal Subsidiary as aforementioned, (b) of a Principal Subsidiary
outstanding at the date of the Indenture or (c) of any corporation outstanding
at the time it becomes a Principal Subsidiary.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
Restrictions on Sales and Leasebacks. Unless otherwise provided in the
Prospectus Supplement with respect to any series of the Debt Securities, neither
the Company nor any Principal Subsidiary of the Company may enter into any Sale
and Leaseback Transaction, the completion of construction and commencement of
full operation of which has occurred more than 270 days prior thereto, unless
(i) the Company or such Principal Subsidiary of the Company could incur a
mortgage on such property under the restrictions described above under
"Limitations on Liens" in an amount equal to the Attributable Debt with respect
to the Sale and Leaseback Transaction without equally and ratably securing the
Debt Securities or (ii) the Company or a Principal Subsidiary of the Company,
within 270 days, applies the Net Available Proceeds from the Sale and Leaseback
Transaction to any combination of the following: (a) the retirement of its
Funded Debt, (b) the purchase of other property or assets which will (I)
constitute Principal Property and (II) have an aggregate value of at least the
consideration paid for such property or assets or (c) Capital Expenditures with
respect to any existing Principal Property (subject to credits for certain
voluntary retirements of Funded Debt). This restriction will not apply to any
Sale and Leaseback Transaction (I) between the Company and Principal
Subsidiaries of the Company or (II) involving the taking back of a lease for a
period of less than three years. (Section 1008)
"Net Available Proceeds" from any Sale and Leaseback Transaction by any
Person means cash or readily marketable cash equivalents received (including by
way of sale or discounting of a note, installment receivable or other
receivable, but excluding any other consideration received in the form of
assumption by the acquiree of indebtedness or obligations relating to the
properties or assets that are the subject of such Sale and Leaseback Transaction
or received in any other noncash form) therefrom by such Person, net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred and all federal, state, provincial, foreign and local taxes required to
be accrued as a liability as a consequence of such Sale and Leaseback
Transaction, (ii) all payments made by such Person or its subsidiaries on any
indebtedness which is secured in whole or in part by any such properties and
assets in accordance with the terms of any Lien upon or with respect to any such
properties and assets or which must, by the terms of such Lien or in order to
obtain a necessary consent to such Sale and Leaseback Transaction or by
applicable law, be repaid out of the proceeds from such Sale and Leaseback
Transaction, and (iii) all distributions and other payments made to minority
interest holders in subsidiaries of such Person or joint ventures as a result of
such Sale Transaction. (Section 101)
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RESTRICTIONS ON MERGER AND SALE OF ASSETS
The Indenture provides that the Company may not consolidate with or merge
into any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and the Company may not permit any
Person to consolidate with or merge into the Company or convey, transfer or
lease its properties and assets substantially as an entirety to the Company,
unless: (i) the Person (if other than the Company) formed by such consolidation
or into which the Company is merged or the Person which acquires by conveyance
or transfer, or which leases, the properties and assets of the Company
substantially as an entirety shall expressly assume the due and punctual payment
of the principal of and interest on all the Debt Securities issued under the
Indenture and the performance or observance of every covenant of the Indenture
on the part of the Company to be performed or observed; (ii) immediately after
giving effect to such transaction and treating any indebtedness which becomes an
obligation of the Company or any Principal Subsidiary of the Company as a result
of such transaction as having been incurred by the Company or such Principal
Subsidiary of the Company at the time of such transaction, no Event of Default
under the Indenture, and no event which, after notice or lapse of time or both,
would become an Event of Default under the Indenture, shall have happened and be
continuing; and (iii) if, as a result of any such transaction, property or
assets of the Company or any Principal Subsidiary of the Company would become
subject to a Lien which would not be permitted by the limitations on Liens
contained in the Indenture, the Company or, if applicable, the successor to the
Company, as the case may be, shall take such steps as shall be necessary
effectively to secure the Debt Securities issued under the Indenture equally and
ratably with (or prior to) the Debt secured by such Lien. (Section 801)
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture with respect to
Debt Securities of any series: (i) failure to pay principal of, or premium, if
any, on any Debt Security of that series when due; (ii) failure to pay any
interest on any Debt Security of that series when due, continued for 30 days;
(iii) failure to deposit any sinking fund payment, when due, in respect to any
Debt Securities of that series; (iv) failure to perform any other covenant of
the Company in the Indenture (other than a covenant the performance of which is
dealt with specifically elsewhere in the Indenture or which has been included in
the Indenture solely for the benefit of series of Debt Securities other than
that series), continuing for 60 days after written notice as provided in the
Indenture; (v) failure to pay when due (after applicable grace periods as
provided in the Indenture) the principal of, or the acceleration of, any
indebtedness for money borrowed by the Company or any Principal Subsidiary of
the Company having an aggregate principal amount outstanding in excess of an
amount equal to 3% of Consolidated Net Tangible Assets, if such indebtedness is
not discharged, or such acceleration is not annulled, within 10 days after
written notice as provided in the Indenture; (vi) certain events of bankruptcy,
insolvency or reorganization; and (vii) any other Event of Default provided with
respect to Debt Securities of that series. No Event of Default with respect to a
particular series of Debt Securities issued under the Indenture (except as to
such events of bankruptcy, insolvency or reorganization or the failure to pay
when due indebtedness having an aggregate principal amount outstanding in excess
of an amount equal to 3% of Consolidated Net Tangible Assets) necessarily
constitutes an Event of Default with respect to any other series of Debt
Securities issued thereunder. (Section 501) The notice referred to in clauses
(iv) and (v) may be given by the Trustee under the Indenture or by the Holders
of at least 25% in aggregate principal amount of the Outstanding Debt Securities
of that series. (Section 501) In case an Event of Default under the Indenture
shall occur and be continuing, then, subject to the provisions of the Indenture
and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"),
relating to the duties of the Trustee under the Indenture, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request or direction of any of the Holders, unless such Holders shall
have offered to the Trustee reasonable indemnity. (Section 603) The Holders of a
majority in aggregate principal amount of the Outstanding Debt Securities of any
series shall have the right,
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subject to such provisions for indemnification of the Trustee to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee under the Indenture or exercising any trust or power conferred on
the Trustee with respect to Debt Securities of that series. (Section 512)
If an Event of Default with respect to Debt Securities of any series at the
time Outstanding shall occur and be continuing, then and in every such case the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Debt Securities of that series may, by a notice in writing to the
Company (and to the Trustee if given by Holders), declare to be due and payable
immediately the principal amount (or, if the Debt Securities of that series are
Original Issue Discount Securities, such portion of the principal amount as may
be specified in the terms of that series) of all Debt Securities of that series.
However, at any time after such a declaration of acceleration with respect to
Debt Securities of any series has been made, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the Holders of a
majority in the principal amount of Outstanding Debt Securities of that series
may, subject to certain conditions, rescind and annul such acceleration if all
Events of Default, other than the non-payment of accelerated principal, with
respect to Debt Securities of that series have been cured or waived as provided
in the indenture. (Section 502) For information as to waiver of defaults, see
"Modification and Waiver" herein. Reference is made to the Prospectus Supplement
relating to any series of Debt Securities which are Original Issue Discount
Securities for the particular provisions relating to acceleration of a portion
of the principal amount of such Original Issue Discount Securities upon the
occurrence of an Event of Default and the continuation thereof.
No Holder of any Debt Security of any series will have any right to
institute any proceeding with respect to the Indenture or for any remedy
thereunder, unless such Holder shall have previously given to the Trustee
written notice of a continuing Event of Default with respect to Debt Securities
of that series and unless also the Holders of at least 25% in aggregate
principal amount of the Outstanding Debt Securities of that series shall have
made written request, and offered reasonable indemnity, to the Trustee to
institute such proceeding as trustee, and the Trustee shall not have received
from the Holders of a majority in aggregate principal amount of the Outstanding
Debt Securities of that series a direction inconsistent with such request and
shall have failed to institute such proceeding within 60 days. (Section 507)
However, such limitations do not apply to a suit instituted by a Holder of any
Debt Security for enforcement of payment of the principal of (and premium, if
any) and any interest on such Debt Security on or after the respective due dates
expressed in such Debt Security. (Section 508)
The Company will be required to furnish to the Trustee annually a statement
as to whether the Company is in default in the performance and observance of any
of the terms, provisions and conditions of the Indenture. (Section 1009) The
Indenture provides that the Trustee may withhold notice to the Holders of Debt
Securities of any series of any default (except in payment of principal, any
premium, interest or any sinking fund payments) with respect to Debt Securities
of such series if it considers it in the interest of the Holders of Debt
Securities of such series to do so. (Section 602)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Debt Securities of each series affected by
such modifications or amendments; provided, however, that no such modification
or amendment may, without the consent of the Holder of each such Outstanding
Debt Security affected thereby, (i) change the Stated Maturity of the principal
of, or any installment of principal or interest on any Debt Security, (ii)
reduce the principal amount of or the rate of interest or the premium (if any)
on any Debt Security or reduce the amount of principal of an Original Issue
Discount Security that would be due and payable upon acceleration, (iii) change
the place or currency of payment of principal of or interest or the premium (if
any) on any Debt Security,
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(iv) impair the right to institute suit for the enforcement of any payment with
respect to any Debt Security on or after the Stated Maturity thereof, (v) reduce
the above-stated percentage in principal amount of Outstanding Debt Securities
of any series the consent of whose Holders is required for any such supplemental
indenture or (vi) reduce the above-stated percentage of Outstanding Debt
Securities of any series the consent of whose Holders is required for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults thereunder. (Section 902)
The Company may, in the circumstances permitted by the Trust Indenture Act,
set any day as the record date for the purpose of determining the Holders of
Debt Securities of any series issued under the Indenture entitled to give or
take any request, demand, authorization, direction, notice, consent, waiver or
other action as provided or permitted by the Indenture. (Section 104)
The Holders of a majority in aggregate principal amount of the Outstanding
Debt Securities of any series may on behalf of the Holders of all Debt
Securities of that series waive, insofar as that series is concerned, compliance
by the Company with the covenants limiting Liens and Sale and Leaseback
Transactions contained in the Indenture. (Section 1010) The Holders of a
majority in aggregate principal amount of the Outstanding Debt Securities of any
series may on behalf of the Holders of all Debt Securities of that series waive
any past default under the Indenture with respect to that series except a
default in the payment of the principal of (or premium, if any) or any interest
on any Debt Security of that series or in respect of a provision which under the
Indenture cannot be modified or amended without the consent of the Holder of
each Outstanding Debt Security of that series affected. (Section 513)
For purposes of the Indenture, the Debt Securities of any series
"Outstanding" thereunder are deemed to exclude those held by Persons that
control, are controlled by or are under common control with the Company,
provided that any Person who does not own, directly or indirectly, more than 5%
of the outstanding voting securities of the Company will not be deemed to
control the Company. (Section 101)
DEFEASANCE
Defeasance and Discharge. The Indenture provides that the Company may
elect to deposit or cause to be deposited with the Trustee as trust funds in
trust, for the benefit of the Holders of Outstanding Debt Securities of any
series, money and/or U.S. Government Obligations sufficient to pay and discharge
the principal of (and premium, if any) and any interest on and any mandatory
sinking fund payments in respect of the Debt Securities of such series on the
Stated Maturity of such payments in accordance with the terms of the Indenture
and such Debt Securities, and thereby be discharged from its obligations with
respect to Outstanding Debt Securities of that series (hereinafter called
"Defeasance") on and after the date that (among other things) the Company
provides to the Trustee certain evidence that (i) the Company has received from,
or there has been published by, the Internal Revenue Service a ruling, or (ii)
there has been a change in the applicable Federal income tax law, in each case
to the effect that the Holders of such Outstanding Debt Securities of that
series will not recognize gain or loss for Federal income tax purposes as a
result of the deposit, Defeasance and discharge to be effected with respect to
such Debt Securities and will be subject to Federal income tax on the same
amount, in the same manner and at the same times as would be the case if such
deposit, Defeasance and discharge were not to occur. For this purpose, such
Defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by such Outstanding Debt Securities of such
series and to have satisfied all its other obligations under the Debt Securities
of that series and the Indenture insofar as the Debt Securities of that series
are concerned, except for certain continuing administrative responsibilities. In
the event of any such Defeasance, Holders of Debt Securities of such series
would be able to look only to such trust for payment of principal of (and
premium, if any) and any interest on and any mandatory sinking fund payments in
respect of the Debt Securities of that series. (Section 403)
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Covenant Defeasance. The Indenture provides that the Company may elect to
deposit or cause to be deposited with the Trustee as trust funds in trust, for
the benefit of the Holders of Outstanding Debt Securities of any series, money
and/or U.S. Government Obligations sufficient to pay and discharge the principal
(and premium, if any) of and any interest on and any mandatory sinking fund
payments in respect of the Debt Securities of such series on the stated maturity
of such payments in accordance with the terms of the Indenture and such Debt
Securities, and thereby (i) be released from its obligations with respect to the
Debt Securities of such series under Section 1005 (Maintenance of Properties),
Section 1006 (Payment of Taxes and Other Claims), Section 1007 (Limitation on
Liens), Section 1008 (Limitation on Sale and Leaseback Transactions) and Section
801 (Consolidation, Merger, Conveyance, Transfer or Lease) of the Indenture and
(ii) have the occurrence of any event specified in (a) Section 501(4) (defaults
in performance, or breach, of covenants and warranties under the Indenture) with
respect to any of Sections 1005 through 1008, inclusive, and Section 801, and
(b) Section 501(5) (defaults under other obligations of the Company) not be
deemed to be or result in an Event of Default, in each case with respect to the
Outstanding Debt Securities of such series (hereinafter called "Covenant
Defeasance"), on and after the date that (among other things) the Company
provides to the Trustee certain evidence that the Holders of Outstanding Debt
Securities of such series will not recognize gain or loss for Federal income tax
purposes as a result of the deposit and Covenant Defeasance to be effected with
respect to such Debt Securities and will be subject to Federal income tax on the
same amount, in the same manner and at the same times as would be the case if
such deposit and Covenant Defeasance were not to occur. For this purpose, such
Covenant Defeasance means that the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such specified Section (to the extent so specified in the case of Section
501(4)), whether directly or indirectly by reason of any reference elsewhere in
the Indenture to any such Section or by reason of any reference in any such
Section to any other provision of the Indenture or in any other document, but
the remainder of the Indenture and such Debt Securities of that series shall be
unaffected thereby. The obligations of the Company under the Indenture and the
Debt Securities of that series other than with respect to the covenants referred
to above and the Events of Default other than the Events of Default referred to
above shall remain in full force and effect. (Section 404)
The term "U.S. Government Obligations" means any security that is a direct
obligation, or is subject to an unconditional guarantee, of the United States of
America for the payment of which the full faith and credit of the United States
of America is pledged. (Section 101)
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PLAN OF DISTRIBUTION
We may sell the Debt Securities through agents, underwriters or dealers, or
directly to one or more purchasers. Goldman, Sachs & Co., Chase Securities Inc.,
Lehman Brothers Inc., Morgan Stanley & Co. Incorporated and NationsBanc
Montgomery Securities LLC may be among such agents or underwriters. In the
ordinary course of their businesses, Goldman, Sachs & Co., Chase Securities
Inc., Lehman Brothers Inc., Morgan Stanley & Co. Incorporated and NationsBanc
Montgomery Securities LLC and their respective affiliates have engaged, and may
in the future engage, in commercial banking and/or investment banking
transactions with the Company or its affiliates.
AGENTS
We may designate agents who agree to use their reasonable efforts to
solicit purchases for the period of their appointment or to sell Debt Securities
on a continuing basis.
UNDERWRITERS
If we use underwriters for a sale of Debt Securities, the underwriters will
acquire the Debt Securities for their own account. The underwriters may resell
the Debt Securities in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The obligations of the underwriters to purchase the Debt
Securities will be subject to certain conditions precedent. The underwriters
will be obligated to purchase all the Debt Securities of the series offered if
any of the Debt Securities of that series are purchased. Any initial public
offering price and any discounts or concessions allowed or re-allowed or paid to
dealers may be changed from time to time.
DIRECT SALES
We may also sell Debt Securities directly to one or more purchasers without
using underwriters or agents.
Underwriters, dealers and agents that participate in the distribution of
the Debt Securities may be underwriters as defined in the Securities Act of 1933
(the "Securities Act") and any discounts or commissions they receive from us and
any profit on their resale of the Debt Securities may be treated as underwriting
discounts and commissions under the Securities Act. The applicable Prospectus
Supplement will identify any underwriters, dealers or agents and will describe
their compensation. We may have agreements with the underwriters, dealers and
agents to indemnify them against certain civil liabilities, including
liabilities under the Securities Act. Underwriters, dealers and agents may
engage in transactions with or perform services for us or our subsidiaries in
the ordinary course of their businesses.
TRADING MARKETS AND LISTING OF SECURITIES
Unless otherwise specified in the applicable Prospectus Supplement, each
class or series of Debt Securities will be a new issue with no established
trading market. We may elect to list any other class or series of Debt
Securities on any exchange, but we are not obligated to do so. It is possible
that one or more underwriters may make a market in a class or series of Debt
Securities, but the underwriters will not be obligated to do so and may
discontinue any market making at any time without notice. We cannot give any
assurances as to the liquidity of the trading market for any of the Debt
Securities.
STABILIZATION ACTIVITIES
Any underwriter may engage in over-allotment, stabilizing transactions,
short covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934.
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Over-allotment involves sales in excess of the offering size, which create a
short position. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum.
Short covering transactions involve purchases of the Debt Securities in the open
market after the distribution is completed to cover short positions. Penalty
bids permit the underwriters to reclaim a selling concession from a dealer when
the Debt Securities originally sold by the dealer are purchased in a covering
transaction to cover short positions. Those activities may cause the price of
the Debt Securities to be higher than it would otherwise be. If commenced, the
Underwriters may discontinue any of the activities at any time.
VALIDITY OF DEBT SECURITIES
Certain legal matters with respect to the offering of the Debt Securities
will be passed upon for the Company by Haynes and Boone, LLP, Dallas, Texas.
Certain legal matters will be passed upon for Goldman, Sachs & Co., Chase
Securities Inc., Lehman Brothers Inc., Morgan Stanley & Co. Incorporated and
NationsBanc Montgomery Securities LLC, by Akin, Gump, Strauss, Hauer & Feld,
L.L.P., Dallas, Texas.
EXPERTS
The financial statements and the related financial statement schedule
incorporated in this Prospectus by reference from the Company's Annual Report on
Form 10-K, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports, which are incorporated herein by reference, and have
been so incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
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No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this Prospectus Supplement or the
Prospectus. You must not rely on any unauthorized information or
representations. This Prospectus Supplement and the Prospectus are an offer to
sell only the Notes offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
Prospectus Supplement and the Prospectus is current only as of this date.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Supplement
The Company.............................. S-2
Use of Proceeds.......................... S-2
Capitalization........................... S-3
Selected Consolidated Financial Data..... S-4
Management's Discussion and Analysis of
Recent Financial Results............... S-5
Business................................. S-9
Description of Notes..................... S-14
Underwriting............................. S-17
Prospectus
Where You Can Find Additional
Information............................ 2
The Company.............................. 2
Use of Proceeds.......................... 3
Ratio of Earnings to Fixed Charges....... 3
Description of Debt Securities........... 4
Plan of Distribution..................... 14
Validity of Debt Securities.............. 15
Experts.................................. 15
</TABLE>
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$100,000,000
LOGO
6.75% Notes
due February 15, 2009
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LOGO
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GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
LEHMAN BROTHERS
MORGAN STANLEY DEAN WITTER
NATIONSBANC MONTGOMERY
SECURITIES LLC
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