<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
------------------------------------
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------------------
For quarter ended May 31, 2000
Commission File Number 1-4304
COMMERCIAL METALS COMPANY
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-0725338
------------------------------ ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7800 Stemmons Freeway
Dallas, Texas 75247
--------------------------------------
(Address of principal executive offices)
( Zip Code )
(214) 689-4300
--------------------------------------------------
(Registrant's telephone number, including area code)
---------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months ( or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of May 31, 2000 there were 13,638,504 shares of the Company's common stock
issued and outstanding excluding 2,494,079 shares held in the Company's
treasury.
<PAGE> 2
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
---------
<S> <C>
PART I - Financial Statements:
Consolidated Balance Sheets -
May 31, 2000 and August 31, 1999 2 - 3
Consolidated Statements of Earnings -
Nine months ended May 31, 2000 and
May 31, 1999 4
Consolidated Statements of Cash Flows -
Nine months ended May 31, 2000 and
May 31, 1999 5
Consolidated Statement of Stockholders' Equity-
Nine months ended May 31, 2000 6
Notes to Consolidated Financial Statements 7 - 8
Management's Discussion and Analysis of the
Consolidated Financial Statements 9 - 16
PART II - Other Information and Signatures 17 - 18
</TABLE>
Page 1
<PAGE> 3
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands except share data)
<TABLE>
<CAPTION>
May 31, August 31,
2000 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 17,656 $ 44,665
Accounts receivable (less allowance for
collection losses of $8,200 and $7,714) 367,538 304,318
Inventories 282,829 249,688
Other 74,757 63,666
----------- -----------
TOTAL CURRENT ASSETS 742,780 662,337
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land 27,716 25,927
Buildings 97,611 87,796
Equipment 670,783 635,054
Leasehold improvements 31,100 30,119
Construction in process 15,063 25,351
----------- -----------
842,273 804,247
Less accumulated depreciation
and amortization (438,391) (401,975)
----------- -----------
403,882 402,272
OTHER ASSETS 20,926 14,379
----------- -----------
$ 1,167,588 $ 1,078,988
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 2
<PAGE> 4
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands except share data)
<TABLE>
<CAPTION>
May 31, August 31,
2000 1999
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Commercial paper $ 70,000 $ 10,000
Notes payable 44,692 4,382
Accounts payable 180,492 191,508
Other payables and accrued expenses 152,983 153,889
Income taxes payable 3,221 2,025
Current maturities of long-term debt 8,773 9,873
----------- -----------
TOTAL CURRENT LIABILITIES 460,161 371,677
DEFERRED INCOME TAXES 23,263 23,263
LONG-TERM DEBT 261,925 265,590
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Capital stock:
Preferred stock -- --
Common stock, par value $5.00 per share;
authorized 40,000,000 shares; issued
16,132,583 shares; outstanding
13,638,504 and 14,406,260 shares 80,663 80,663
Additional paid-in capital 14,103 14,131
Accumulated other comprehensive loss (1,713) (774)
Retained earnings 396,168 368,177
----------- -----------
489,221 462,197
Less treasury stock,
2,494,079 and 1,726,323 shares at cost (66,982) (43,739)
----------- -----------
422,239 418,458
----------- -----------
$ 1,167,588 $ 1,078,988
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 3
<PAGE> 5
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
May 31, May 31, May 31, May 31,
----------- ----------- ----------- -----------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 701,209 $ 583,171 $ 1,951,260 $ 1,682,067
COSTS AND EXPENSES:
Cost of goods sold 614,133 506,323 1,707,618 1,461,645
Selling, general and
administrative expenses 54,758 51,310 157,069 145,567
Interest expense 7,265 4,088 19,937 13,632
Employees' retirement plans 4,398 3,917 13,166 12,778
----------- ----------- ----------- -----------
680,554 565,638 1,897,790 1,633,622
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 20,655 17,533 53,470 48,445
INCOME TAXES 7,694 6,531 19,918 18,046
----------- ----------- ----------- -----------
NET EARNINGS $ 12,961 $ 11,002 $ 33,552 $ 30,399
=========== =========== =========== ===========
Basic earnings per share $ 0.93 $ 0.76 $ 2.36 $ 2.09
Diluted earnings per share $ 0.92 $ 0.76 $ 2.31 $ 2.07
Cash dividends per share $ 0.13 $ 0.13 $ 0.39 $ 0.39
Average basic shares outstanding 13,986,418 14,493,180 14,241,221 14,559,437
Average diluted shares outstanding 14,120,823 14,562,281 14,513,233 14,663,998
</TABLE>
See notes to consolidated financial statements.
Page 4
<PAGE> 6
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine months ended
May 31, May 31,
----------- -----------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 33,552 $ 30,399
Adjustments to earnings not requiring cash:
Depreciation and amortization 49,579 36,621
Provision for losses on receivables 820 1,789
Gain on sale of property and other (5,847) (125)
--------- ---------
Cash flows from operations before changes in
current assets and liabilities 78,104 68,684
Changes in current assets and liabilities:
Decrease (increase) in receivables (64,040) (1,283)
Decrease (increase) in inventories (33,141) 23,428
Decrease (increase) in other assets (21,684) 10,410
Increase (decrease) in accounts payable,
accrued expenses and income taxes (10,726) 6,401
--------- ---------
Net Cash (Used) Provided by Operating Activities (51,487) 107,640
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment, net (48,885) (118,637)
Sales of property, plant and equipment 7,866 125
Investment in joint venture (1,216)
--------- ---------
Net Cash Used by Investing Activities (42,235) (118,512)
CASH FLOWS FROM FINANCING ACTIVITIES:
Commercial paper - net change 60,000 (15,000)
Notes payable - net change 40,310 (51,165)
New long-term notes -- 100,000
Payments on long-term debt (4,765) (10,705)
Stock issued under stock option and purchase plans 5,545 1,614
Treasury stock acquired (28,816) (6,661)
Dividends paid (5,561) (5,676)
--------- ---------
Net Cash Provided by Financing Activities 66,713 12,407
Increase (decrease) in Cash and Cash Equivalents (27,009) 1,535
Cash and Cash Equivalents at Beginning of Year 44,665 30,985
--------- ---------
Cash and Cash Equivalents at End of Period $ 17,656 $ 32,520
========= =========
</TABLE>
See notes to consolidated financial statements.
Page 5
<PAGE> 7
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands except share data)
<TABLE>
<CAPTION>
Common Stock Accumulated
----------------------- Other Add'l
Number of Comprehensive Paid-In Retained
Shares Amount Loss Capital Earnings
---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance September 1, 1999 16,132,583 $ 80,663 $ (774) $ 14,131 $ 368,177
Comprehensive Income:
Net earnings for nine months
ended May 31, 2000 33,552
Other comprehensive loss-
Foreign currency translation adjustment
net of taxes of $506 (939)
Comprehensive income
Cash dividends - $.39 a share (5,561)
Treasury stock acquired
Stock issued under stock option,
purchase and bonus plans (28)
---------- ---------- --------- --------- ---------
Balance May 31, 2000 16,132,583 $ 80,663 $ (1,713) $ 14,103 $ 396,168
========== ========== ========= ========= =========
<CAPTION>
Treasury Stock
------------------------
Number of
Shares Amount Total
---------- ----------- ----------
<S> <C> <C> <C>
Balance September 1, 1999 (1,726,323) $ (43,739) $ 418,458
Comprehensive Income:
Net earnings for nine months
ended May 31, 2000 33,552
Other comprehensive loss-
Foreign currency translation adjustment
net of taxes of $506 (939)
---------
Comprehensive income 32,613
Cash dividends - $.39 a share (5,561)
Treasury stock acquired (988,500) (28,816) (28,816)
Stock issued under stock option,
purchase and bonus plans 220,744 5,573 5,545
---------- ---------- ---------
Balance May 31, 2000 (2,494,079) $ (66,982) $ 422,239
========== ========== =========
</TABLE>
See notes to consolidated financial statements.
Page 6
<PAGE> 8
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - LONG-TERM DEBT AND EQUITY (in thousands):
<TABLE>
<CAPTION>
Total
Long-Term Current Amount
Debt Maturities Outstanding
--------- ---------- -----------
<S> <C> <C> <C>
6.75% notes due 2009 $100,000 $ -- $100,000
7.20% notes due 2005 100,000 -- 100,000
6.80% notes due 2007 50,000 -- 50,000
8.49% notes due 2001 7,142 7,143 14,285
Other 4,783 1,630 6,413
-------- -------- --------
$261,925 $ 8,773 $270,698
======== ======== ========
</TABLE>
NOTE B - QUARTERLY FINANCIAL DATA:
In the opinion of Management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as of May
31, 2000, the results of operations for the nine months then ended and the cash
flows for the nine months. The results of operations for the nine month periods
are not necessarily indicative of the results to be expected for a full year.
NOTE C - Reclassifications:
Certain reclassifications have been made in the 1999 financial
statements to conform to the classifications used in the current year.
NOTE D - EARNINGS PER SHARE:
There were no adjustments to net earnings to arrive at net income for
either the nine months ended May 31, 2000 or 1999. The reconciliation of the
denominators of the earnings per share calculations are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
May 31, 2000 May 31, 1999 May 31, 2000 May 31, 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares outstanding for basic earnings per share 13,986,418 14,493,180 14,241,221 14,559,437
Effect of dilutive securities-stock options/purchase plans 134,405 69,101 272,012 104,561
Shares outstanding for dilutive earnings per share 14,120,823 14,562,281 14,513,233 14,663,998
</TABLE>
Stock options with total share committments of 1,073,253 at May 31, 2000
were anti-dilutive based on the average share price for the quarter of $27.73
per share, and exercise prices of $28.00 - 31.94 per share. The options expire
in 2007.
During the third quarter, the Board of Directors of the Company
authorized the purchase of up to 500,000 additional shares of the Company's
common stock.
Page 7
<PAGE> 9
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E - BUSINESS SEGMENTS (in thousands):
The following is a summary of certain financial information by
reportable segment:
<TABLE>
<CAPTION>
Three months ended May 31, 2000
----------------------------------
MANU- MARKETING CORP CONSOL-
FACTURING RECYCLING & TRADING & ELIM IDATED
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales-unaffiliated customers $ 343,850 $ 114,837 $ 242,700 $ (178) $ 701,209
Intersegment sales 1,439 6,320 7,957 (15,716) 0
--------- --------- --------- --------- ---------
345,289 121,157 250,657 (15,894) 701,209
Earnings (Loss) before income taxes 20,014 1,569 4,704 (5,632) 20,655
</TABLE>
<TABLE>
<CAPTION>
Three months ended May 31, 1999
----------------------------------
MANU- MARKETING CORP CONSOL-
FACTURING RECYCLING & TRADING & ELIM IDATED
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales-unaffiliated customers $ 306,437 $ 78,476 $ 198,238 $ 20 $ 583,171
Intersegment sales 896 3,115 4,248 (8,259) 0
--------- --------- --------- --------- ---------
307,333 81,591 202,486 (8,239) 583,171
Earnings (Loss) before income taxes 19,596 (270) 4,331 (6,124) 17,533
</TABLE>
<TABLE>
<CAPTION>
Nine months ended May 31, 2000
---------------------------------------
MANU- MARKETING CORP CONSOL-
FACTURING RECYCLING & TRADING & ELIM IDATED
----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales-unaffiliated customers $ 977,437 $ 323,052 $ 651,034 $ (263) $ 1,951,260
Intersegment sales 4,291 17,444 21,530 (43,265) 0
----------- ----------- ----------- ----------- -----------
981,728 340,496 672,564 (43,528) 1,951,260
Earnings (Loss) before income taxes 53,311 4,424 13,264 (17,529) 53,470
Total assets 771,888 117,198 248,157 30,345 1,167,588
</TABLE>
<TABLE>
<CAPTION>
Nine months ended May 31, 1999
----------------------------------------
MANU- MARKETING CORP CONSOL-
FACTURING RECYCLING & TRADING & ELIM IDATED
----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales-unaffiliated customers $ 896,762 $ 222,662 $ 562,566 $ 77 $ 1,682,067
Intersegment sales 2,805 14,065 26,908 (43,778) 0
----------- ----------- ----------- ----------- -----------
899,567 236,727 589,474 (43,701) 1,682,067
Earnings (Loss) before income taxes 59,899 (6,144) 12,221 (17,531) 48,445
Total assets 693,483 109,346 226,956 22,985 1,052,770
</TABLE>
Page 8
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED RESULTS OF OPERATIONS
(in millions)
<TABLE>
<CAPTION>
Nine months ended
Third quarter May 31,
------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 701 $ 583 $ 1,951 $ 1,682
Net earnings 13.0 11.0 33.6 30.4
Cash flows 24.6 24.8 78.1 68.7
EBITDA 44.7 34.8 123.0 98.7
LIFO reserve 6.4 12.2
</TABLE>
SIGNIFICANT EVENTS AFFECTING THE COMPANY THIS QUARTER:
- Net earnings increased 18% compared to the prior year period.
- Higher steel shipments, outstanding copper tube profitability and a property
sale net gain ($3.5 million after-tax) sustained the Manufacturing Segment,
in spite of higher depreciation and interest expenses and accruals ($3.3
million after-tax) for estimated settlements on large structural steel
fabrication jobs.
- $1.5 million (after-tax) was recovered from graphite electrode anti-trust
litigation.
- Steel minimill operating profits improved from the prior year period, in
spite of a $500,000 (after-tax) write-down of retired mill equipment held
for sale.
- The Company acquired the assets of two profitable southern California rebar
fabricators and a concrete related products business in Houston, Texas.
- The Recycling segment was profitable, as compared with the prior year's
loss.
- The Marketing and Trading segment continued its profitability and expansion
into new markets and products.
Page 9
<PAGE> 11
CONSOLIDATED DATA
The LIFO method of inventory valuation decreased net earnings for the quarter
$626,000 (4 cents per diluted share) compared to an increase of $3.5 million (24
cents per diluted share) last year. For the nine months, net earnings were $2.2
million lower (15 cents per diluted share) compared to an increase of $6.7
million (45 cents per diluted share) last year.
SEGMENT OPERATING DATA
(in thousands)
Net sales and operating profit (loss) by business segment are shown in the
following table:
<TABLE>
<CAPTION>
Three months ended Nine months ended
May 31, May 31,
--------------------- -----------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES:
Manufacturing $ 345,289 $ 307,333 $ 981,728 $ 899,567
Recycling 121,157 81,591 340,496 236,727
Marketing & Trading 250,657 202,486 672,564 589,474
Corporate & Eliminations (15,894) (8,239) (43,528) (43,701)
--------- --------- ---------- ----------
$ 701,209 $ 583,171 $1,951,260 $1,682,067
========= ========= ========== ==========
OPERATING PROFIT (LOSS):
Manufacturing $ 20,085 $ 19,608 $ 53,421 $ 59,917
Recycling 1,578 (255) 4,450 (6,109)
Marketing & Trading 5,327 4,825 14,961 14,167
Corporate & Eliminations 930 (2,557) 575 (5,898)
--------- --------- ---------- ----------
$ 27,920 $ 21,621 $ 73,407 $ 62,077
========= ========= ========== ==========
</TABLE>
MANUFACTURING -
The Company's Manufacturing segment consists of the Steel Group and the Copper
Tube Division. Operating profit for the segment increased 2% from last year's
third quarter while net sales increased 12%. The Steel Group's operating profit
was 5% below last year's third quarter. Underlying demand for steel long
products was good, and steel shipments increased. However, an historically high
level of low-priced steel imports continued to pressure steel mill prices. Also,
margins were pressured by lower profits in steel fabrication because of losses
on structural steel projects. Significantly better operating profit for the
Copper Tube Division more than offset the Steel Group's decline in operating
profit.
Page 10
<PAGE> 12
Steel and scrap prices are as reflected in the table below:
<TABLE>
<CAPTION>
Third Quarter
-------------
2000 1999
---- ----
<S> <C> <C>
Average mill selling price $312 $290
Average fabrication selling price 616 667
Average scrap purchase price 96 73
</TABLE>
Operating profit for the Company's four steel minimills was 9% above the prior
year. Mill shipments increased 9% to 491,000 from 449,000 tons, and tons rolled
were up 41% from last year primarily because of higher production from the new
rolling mill at SMI South Carolina and stronger demand. Tons melted also
significantly increased. The prior year's production was down due to
construction interference associated with major capital projects at SMI Alabama
and SMI South Carolina. Margins in fiscal 2000 were slightly lower due to higher
scrap prices. While the average mill selling price was $22 per ton above last
year, average scrap purchase costs were higher by $23 per ton. Although
production at the new SMI South Carolina rolling mill was at record levels,
profits were lower than anticipated because of lower selling prices and a
product mix not yet balanced with higher value added products. The 2000
quarterly results included a $1.5 million (after-tax) graphite electrode
anti-trust recovery and a $500,000 (after- tax) write-down of the old mill
equipment held for sale at SMI South Carolina. During the prior year quarter,
the mills absorbed an after-tax charge of $1.8 million for start up costs
associated with the construction projects.
Net sales in the fabrication businesses increased 4% from the prior year's third
quarter. Accruals of $3.3 million (after-tax) for estimated settlements on large
steel structural jobs were more than offset by a property sale gain. The sale of
land and improvements grossed $8.4 million which after costs related to the sale
and escrows resulted in a net gain of $5.5 million ($3.5 million after-tax).
Fabricated steel shipments totaled 238,000 tons, a 7% increase from the prior
year period. The average fab selling price decreased 8% ($51) per ton.
In May 2000 the Company acquired substantially all of the assets of two
profitable rebar fabrication companies in southern California: Fontana Steel,
Inc. with operations in Rancho Cucamonga and San Marcos, and C & M Steel, Inc.
in Fontana. These acquisitions expanded the Company's market penetration to the
largest rebar market in the United States. Also, in March 2000 the Company
purchased substantially all of the operating assets of Bell - Barcelona Concrete
Accessories, further expanding its concrete related products business in the
Houston, Texas area. The Company continued to progress with its new castellated
beam facility and product line as an adjunct to its steel joist business.
Page 11
<PAGE> 13
Depreciation and amortization expense for the Steel Group increased by $3.6
million pretax from the prior year third quarter due to the new rolling mill in
South Carolina and new finishing line at SMI Alabama. The Company's interest
expense increased by $3.2 million from the prior year because the completion of
these two projects by fiscal year end 1999 substantially ended capitalization of
interest expense, short term rates have edged up and overall borrowings have
increased primarily due to working capital needs.
The Copper Tube Division's operating profit increased 48% from the same period
last year due to better material spreads on net sales that were 30% higher.
Demand for plumbing and refrigeration tube continued to be buoyed by the strong
residential construction sector in the third quarter 2000. Copper tube shipments
increased 11% versus the third quarter last year, and production was 8% higher.
RECYCLING -
The Recycling segment reported an operating profit of $1.6 million for the third
quarter 2000, compared with the prior year period loss of $255,000. Prices were
significantly better than the corresponding period last year, although they were
lower than in the second quarter of the current fiscal year for both ferrous and
nonferrous scrap. The supply of scrap was plentiful and more than kept up with
demand, including continued imports of ferrous raw materials. Net sales
increased 48% to $121 million. Ferrous scrap tonnage processed and shipped
increased 19%, and ferrous sales prices were an average $100 per ton or 25%
higher than a year ago. Nonferrous shipments increased 20%, and the average
nonferrous scrap price was 22% higher than the prior year period. Total volume
of scrap processed, including the Steel Group processing plants, was 629,000
tons, an increase of 19% from the 528,000 tons processed during the prior year
period.
MARKETING AND TRADING -
Operating profit for the Marketing and Trading segment was 10% higher than the
prior year's third quarter, while net sales increased 24% to $251 million. The
recovery in global steel prices generally reached a plateau during the quarter
and decreased in some cases. Margins in steel marketing and distribution held up
better than those in steel trading. Tonnage was steady. The strong United States
dollar had a significant influence on regional supply flows. The segment's
operating results improved because of product diversification, stronger regional
business and solid execution. Markets in nonferrous metal products remained
highly competitive, but profitability was improved due to increased sales from
the Company's diverse product lines, further market penetration and progress in
extending the range of products. Sales of industrial raw materials and products
including ores, minerals, ferrous raw materials and primary metals increased and
remained profitable despite continued margin pressures.
Page 12
<PAGE> 14
CONTINGENCIES
In the ordinary course of conducting its business, the Company becomes involved
in litigation, administrative proceedings, governmental investigations,
including environmental matters, and contractual disputes. Some of these matters
may result in settlements, fines, penalties or judgments being assessed against
the Company. While the Company is unable to estimate precisely the ultimate
dollar amount of exposure to loss in connection with the above-referenced
matters, it makes accruals as warranted. Due to evolving remediation technology,
changing regulations, possible third-party contributions, the inherent
shortcomings of the estimation process, the uncertainties involved in litigation
and other factors, amounts accrued could vary significantly from amounts paid.
Accordingly, it is not possible to estimate a meaningful range of possible
exposure. Management believes that adequate provision has been made in the
financial statements for the estimable potential impact of these contingencies,
and that the outcomes will not significantly impact the long-term results of
operations or the financial position of the Company, although they may have a
material impact on earnings for a particular period.
During fiscal year 2000, the Company incurred substantial costs primarily as a
result of a subcontractor default on a large structural steel fabrication
contract. The Company has subcontractor default protection insurance for this
work. Although, the upper limit of the expense to the Company as a result of the
subcontractor default has not yet been calculated, the Company had recorded
amounts due of approximately $3.5 million pretax as of May 31, 2000 as a portion
of the claim against the insurance company. The Company has initiated legal
action under the insurance policy to collect this amount as well as other
damages the Company has, or may in the future incur. The insurance carrier
apparently disputes coverage and liability. Management believes that the Company
has a valid claim under the policy and that the recorded amounts, at a minimum,
will ultimately be collected.
The Company is subject to federal, state and local pollution control laws and
regulations in all locations where it has operating facilities. It anticipates
that compliance with these laws and regulations will involve continuing capital
expenditures and operating costs.
OUTLOOK -
Management continues to believe that the fourth quarter of fiscal year 2000 will
be stronger than the third quarter, due to both internal and external factors.
The Company's biggest challenge remains to continue improving profit performance
at the South Carolina mill and stabilize the large structural fabrication
business. Markets, generally should be relatively steady. Although the United
States economy is decelerating, demand from the construction, manufacturing and
distribution sectors remains healthy, and markets in Europe and Asia (other than
Japan) have been
Page 13
<PAGE> 15
gaining momentum. Earnings per share will be further enhanced by the Company's
accelerated share repurchases.
Because of the global market improvement, potential anti-dumping action on some
of the Company's steel mill products, the seasonal increase in construction, and
the recent softening of the United States dollar, management expects that steel
mill production and shipments will increase. The mills' operating profits will
also benefit from the recent decline in raw material costs. Conversely,
customers continue to reduce inventories. The outlook for the Company's
downstream steel fabrication and related operations remains favorable, and its
strong presence in fabrication continues to provide profit stability.
Residential construction is down from its peak, but remains relatively brisk;
consequently, demand for copper tube is expected to continue to be good. The
planned expansion of the copper tube facility is underway with completion
anticipated in fiscal year 2001.
As the fourth quarter began, ferrous and nonferrous scrap prices had declined
significantly from recent highs, but appear to have stabilized. However,
management does not anticipate much recovery of near-term prices for the main
product lines in the Recycling segment. Demand for ferrous scrap remains good
but is weaker than expected considering relatively high steel mill operating
rates. Management anticipates some decline in ferrous scrap imports which would
strengthen prices. Nonferrous markets are relatively stronger.
In Marketing and Trading, the overall global steel outlook is mixed. Demand for
nonferrous semi-finished and industrial products should remain solid. Management
does not expect firmer prices, however, and volume could decline temporarily.
The recently weaker United States currency will alter material flow. The Company
will continue its expansion into new product and geographic areas.
Longer term, the Company expects good markets to continue for construction
related products and services. Added spending for the nation's infrastructure
(including highways, bridges and airports, as well as schools) has begun to
materialize, albeit unevenly. The Company anticipates relatively high
consumption of steel bar and structural steel in the public sector during the
next few years. The outlook for private construction also is favorable. Global
prospects for metal consumption in the engineering and manufacturing sectors are
similarly encouraging as the world focuses on productivity and technological
improvements.
The Company's historically high capital investments in fiscal years 1999 and
1998 should result in a meaningful increase in revenue growth and earnings
power, with the major benefit beginning in fiscal year 2001. The Company will
continue to profit from its vertical integration and unique business mix, and
should be in a more favorable pricing environment.
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This outlook section contains forward-looking statements regarding the outlook
for the Company's financial results including shipments, pricing, demand,
production rates, and general market conditions. There is inherent risk and
uncertainty in any forward-looking statements. Variances will occur and some
could be materially different from management's current opinion. Developments
that could impact the Company's expectations include interest rate changes,
construction activity, metals pricing over which the Company exerts little
influence, new capacity and product availability from competing steel minimills
and other steel suppliers including import quantities and pricing, global
factors including credit availability, currency fluctuations, and decisions by
governments impacting the level and pace of overall economic growth.
LIQUIDITY
Cash flows from operations before changes in current assets and liabilities for
the nine months ended May 31, 2000 were $78.1 million compared to $68.7 million
last year. Net cash flows used by operating activities was $51.5 million
compared with $107.6 million provided by operating activities in the prior year
period.
Depreciation and amortization increased during fiscal year 2000 primarily due to
the capital projects at South Carolina and Alabama which were commissioned
during the second half of the prior year. Accounts receivable increased
partially due to higher sales in fiscal year 2000 than in the last part of
fiscal 1999. The remainder of the increase was primarily due to slower
collection of retention and billings for large steel structural jobs. The
Company has increased its inventories since August 31, 1999 because of higher
prices and increased volume. The Company's other assets increased from the
fiscal 1999 year end primarily due to more dealer advances, prepaid expenses,
and goodwill. Accounts payable decreased $11.0 million because of timing
differences in international sales.
Notes payable and commercial paper increased $100.3 million to supplement
current cash flows for funding working capital, capital expenditures and
treasury stock repurchases. The Company invested $48.9 million in property,
plant and equipment primarily in the Steel Group at the steel minimills, and in
its fabrication operations including acquisitions. The company also invested in
the expansion of its copper tube facility. These capital expenditures were
substantially less than the $118.6 million spent during the prior year period.
At May 31, 2000, there were 13,638,504 common shares issued and outstanding with
2,494,079 held in the Company's treasury. Stockholders' equity was $422 million
or $30.96 per share. During fiscal 2000, the Company repurchased 988,500 shares
of common stock at an average price of $29.15.
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Net working capital was $283 million at May 31, 2000 compared to $291 million at
August 31,1999. The current ratio was 1.6, slightly below August 31,1999. The
Company's effective tax rate for the nine months was 37.3%, the same as the
prior year period.
Long-term debt as a percent of total capitalization was 37.0% at May 31, 2000
compared to 37.5% at August 31, 1999. The ratio of total debt to total
capitalization plus short-term debt stood at 46.4%, higher than the 39.6% at
fiscal 1999 year end due to working capital requirements, capital expenditures
and treasury share repurchases.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the information incorporated by reference from
Item 3. Legal Proceedings in the Company's Annual Report on Form 10-K for the
year ending August 31, 1999, filed November 24, 1999, with the Securities and
Exchange Commission.
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits required by Item 601 of Regulation S-K.
27. Financial Data Schedule for the period ended
May 31, 2000.
B. No reports on Form 8-K have been filed during the quarter
for which this report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMERCIAL METALS COMPANY
June 22, 2000 /s/ William B. Larson
Vice President
& Chief Financial Officer
June 22, 2000 /s/ Malinda G. Passmore
Controller
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
