<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 2O549
------------------------------------
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
-------------------------------------------
For quarter ended February 29, 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 February 29, 2000 there were 14,216,019 shares of the Company's common
stock issued and outstanding excluding 1,916,564 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 -
February 29, 2000 and August 31, 1999 2 - 3
Consolidated Statements of Earnings -
Six months ended February 29, 2000 and
February 28, 1999 4
Consolidated Statements of Cash Flows -
Six months ended February 29, 2000 and
February 28, 1999 5
Consolidated Statement of Stockholders' Equity
For the six months ended February 29, 2000 6
Notes to Consolidated Financial Statements 7 - 8
Management's Discussion and Analysis of the
Consolidated Financial Statements 9 - 15
PART II - Other Information and Signatures 16 - 18
</TABLE>
Page 1
<PAGE> 3
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands except share data)
<TABLE>
<CAPTION>
February 29, August 31,
2000 1999
------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 17,709 $ 44,665
Accounts receivable (less allowance for
collection losses of $8,164 and $7,714) 362,971 304,318
Inventories 280,536 249,688
Other 69,835 63,666
------------ -----------
TOTAL CURRENT ASSETS 731,051 662,337
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land 26,397 25,927
Buildings 90,250 87,796
Equipment 650,096 635,054
Leasehold improvements 30,712 30,119
Construction in process 25,807 25,351
------------ -----------
823,262 804,247
Less accumulated depreciation
and amortization (424,761) (401,975)
------------ -----------
398,501 402,272
OTHER ASSETS 15,479 14,379
------------ -----------
$ 1,145,031 $ 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>
February 29, August 31,
2000 1999
------------ -----------
<S> <C> <C>
CURRENT LIABILITIES:
Commercial paper $ 75,000 $ 10,000
Notes payable 38,428 4,382
Accounts payable 185,597 191,508
Other payables and accrued expenses 126,076 153,889
Income taxes payable 2,949 2,025
Current maturities of long-term debt 7,741 9,873
------------ -----------
TOTAL CURRENT LIABILITIES 435,791 371,677
DEFERRED INCOME TAXES 23,263 23,263
LONG-TERM DEBT 258,058 265,590
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Capital stock:
Preferred stock -- --
Common stock, par value $5.00 a share;
authorized 40,000,000 shares; issued
16,132,583 shares, outstanding
14,216,019 and 14,406,260 shares 80,663 80,663
Additional paid-in capital 14,132 14,131
Cumulative translation adjustment (1,065) (774)
Retained earnings 385,032 368,177
------------ -----------
478,762 462,197
Less treasury stock,
1,916,564 and 1,726,323 shares at cost (50,843) (43,739)
------------ -----------
427,919 418,458
------------ -----------
$ 1,145,031 $ 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 Six months ended
February 29, February 28, February 29, February 28,
-------------------------- --------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 637,624 $ 550,065 $ 1,250,051 $ 1,098,896
COSTS AND EXPENSES:
Cost of goods sold 558,492 480,266 1,093,485 955,322
Selling, general and
administrative expenses 51,179 47,739 102,311 94,257
Interest expense 6,848 4,633 12,672 9,544
Employees' retirement plans 4,598 4,063 8,768 8,861
------------ ------------ ------------ ------------
621,117 536,701 1,217,236 1,067,984
------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES 16,507 13,364 32,815 30,912
INCOME TAXES 6,149 4,978 12,224 11,515
------------ ------------ ------------ ------------
NET EARNINGS $ 10,358 $ 8,386 $ 20,591 $ 19,397
============ ============ ============ ============
Basic earnings per share $ 0.72 $ 0.57 $ 1.43 $ 1.33
Diluted earnings per share $ 0.70 $ 0.57 $ 1.40 $ 1.32
Cash dividends per share $ 0.13 $ 0.13 $ 0.26 $ 0.26
Average basic shares outstanding 14,349,209 14,607,065 14,368,623 14,592,565
Average diluted shares outstanding 14,780,772 14,768,862 14,709,438 14,714,856
</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>
Six months ended
----------------------
Feb. 29, Feb. 28,
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 20,591 $ 19,397
Adjustments to earnings not requiring cash:
Depreciation and amortization 32,770 23,485
Provision for losses on receivables 490 1,087
Other (325) (100)
--------- ---------
Cash flows from operations before changes in
current assets and liabilities 53,526 43,869
Changes in current assets and liabilities:
Decrease (increase) in receivables (59,143) 6,784
Decrease (increase) in inventories (30,848) (7,794)
Decrease (increase) in other assets (9,239) 10,113
Increase (decrease) in accounts payable,
accrued expenses and income taxes (32,800) (20,692)
--------- ---------
Net Cash (Used) Provided by Operating Activities (78,504) 32,280
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (26,104) (84,198)
Sales of property, plant and equipment 325 100
Investment in joint venture (1,216)
--------- ---------
Net Cash Used by Investing Activities (26,995) (84,098)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Commercial paper - net change 65,000 (15,000)
Notes payable - net change 34,046 (35,806)
New long-term notes 100,000
Payments on long-term debt (9,664) (8,544)
Stock issued under stock option and purchase plans 5,506 1,521
Treasury stock acquired (12,609)
Dividends paid (3,736) (3,790)
--------- ---------
Net Cash Provided by Financing Activities 78,543 38,381
--------- ---------
Decrease in Cash and Cash Equivalents (26,956) (13,437)
Cash and Cash Equivalents at Beginning of Year 44,665 30,985
--------- ---------
Cash and Cash Equivalents at End of Period $ 17,709 $ 17,548
========= =========
</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 Treasury Stock
---------------------- Other Add'l ---------------------
Number of Comprehensive Paid-In Retained Number of
Shares Amount Loss Capital Earnings Shares Amount Total
----------- ---------- ------------- -------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance September 1, 1999 16,132,583 $ 80,663 $(774) $ 14,131 $ 368,177 (1,726,323) $ (43,739) $418,458
Comprehensive Income:
Net earnings for six months
ended February 29, 2000 20,591 20,591
Other comprehensive income-
Foreign currency translation
adjustment net of taxes of
$157 (291) (291)
--------
Comprehensive income 20,300
Cash dividends - $.26 a share (3,736) (3,736)
Treasury stock acquired (408,400) (12,609) (12,609)
Stock issued under stock option,
purchase and bonus plans 1 218,159 5,505 5,506
----------- ---------- ------------- -------- ---------- ---------- --------- --------
Balance, February 29, 2000 16,132,583 $ 80,663 $(1,065) $ 14,132 $ 385,032 (1,916,564) $ (50,843) $427,919
=========== ========== ============= ======== ========== ========== ========= ========
</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 916 598 1,514
--------- ---------- -----------
$ 258,058 $ 7,741 $ 265,799
========= ========== ===========
</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
February 29, 2000 the results of operations for the six months then ended and
the cash flows for the six months. The results of operations for the six 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 six months ended February 29, 2000 or February 28, 1999. The
reconciliation of the denominators of the earnings per share calculations are as
follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
Feb. 29, 2000 Feb. 28, 1999 Feb. 29, 2000 Feb. 28, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares outstanding for basic earnings per share 14,349,209 14,607,065 14,368,623 14,592,565
Effect of dilutive securities-stock options/purchase plans 431,563 161,797 340,815 122,291
Shares outstanding for dilutive earnings per share 14,780,772 14,768,862 14,709,438 14,714,856
</TABLE>
Stock options with total share commitments of 9,000 at February 29, 2000
were anti-dilutive based on the average share price for the quarter of $31.32
per share, and exercise prices of $31.94 per share. The options expire in 2007.
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 February 29, 2000
-----------------------------------------
MANU- MARKETING CORP CONSOL-
FACTURING RECYCLING & TRADING & ELIM IDATED
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales-unaffiliated customers $ 321,857 $ 110,360 $ 205,500 $ (93) $ 637,624
Intersegment sales 1,709 6,817 8,325 (16,851)
----------- ----------- ----------- ----------- -----------
323,566 117,177 213,825 (16,944) 637,624
Earnings (Loss) before income taxes 15,597 2,270 4,729 (6,089) 16,507
</TABLE>
<TABLE>
<CAPTION>
Three months ended February 28, 1999
-----------------------------------------
MANU- MARKETING CORP CONSOL-
FACTURING RECYCLING & TRADING & ELIM IDATED
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales-unaffiliated customers $ 287,646 $ 71,042 $ 191,329 $ 48 $ 550,065
Intersegment sales 1,047 5,519 11,495 (18,061)
----------- ----------- ----------- ----------- -----------
288,693 76,561 202,824 (18,013) 550,065
Earnings (Loss) before income taxes 16,712 (1,745) 4,034 (5,637) 13,364
</TABLE>
<TABLE>
<CAPTION>
Six months ended February 29, 2000
----------------------------------------
MANU- MARKETING CORP CONSOL-
FACTURING RECYCLING & TRADING & ELIM IDATED
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales-unaffiliated customers $ 633,587 $ 208,215 $ 408,334 $ (85) $ 1,250,051
Intersegment sales 2,852 11,124 13,573 (27,549) 0
----------- ----------- ----------- ----------- -----------
636,439 219,339 421,907 (27,634) 1,250,051
Earnings (Loss) before income taxes 33,297 2,855 8,560 (11,897) 32,815
Total assets 738,059 120,342 255,762 30,868 1,145,031
</TABLE>
<TABLE>
<CAPTION>
Six months ended February 28, 1999
-----------------------------------------
MANU- MARKETING CORP CONSOL-
FACTURING RECYCLING & TRADING & ELIM IDATED
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales-unaffiliated customers $ 590,325 $ 144,186 $ 364,328 $ 57 $ 1,098,896
Intersegment sales 1,909 10,950 22,660 (35,519) 0
----------- ----------- ----------- ----------- -----------
592,234 155,136 386,988 (35,462) 1,098,896
Earnings (Loss) before income taxes 40,303 (5,874) 7,890 (11,407) 30,912
Total assets 665,825 111,386 239,225 25,066 1,041,502
</TABLE>
Page 8
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED RESULTS OF OPERATIONS
(in millions)
<TABLE>
<CAPTION>
Second quarter Six months ended
----------------- -------------------
Feb. 29, Feb. 28,
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 638 $ 550 $ 1,250 $ 1,099
Net earnings 10.4 8.4 20.6 19.4
Cash flows 27.2 20.7 53.5 43.9
EBITDA 39.8 29.6 78.3 63.9
LIFO reserve 5.4 17.6
</TABLE>
SIGNIFICANT EVENTS AFFECTING THE COMPANY THIS QUARTER:
- - Net earnings increased 24% compared to the prior year period.
- - Higher steel shipments and outstanding copper tube profitability sustained
the Manufacturing Segment, in spite of a slower ramp up in South Carolina
and significant losses on several large structural fabrication contracts.
- - Steel minimill operating profits declined from the prior year period due to
higher scrap purchase costs and increased depreciation, amortization, and
interest.
- - The Company acquired the operating assets of Suncoast Steel Corp. of Naples,
Florida expanding its rebar fabrication business.
- - The Recycling segment sustained a broad turnaround from the prior year's
losses.
- - Operations improved for the Marketing and Trading segment.
Page 9
<PAGE> 11
CONSOLIDATED DATA
The LIFO method of inventory valuation decreased net earnings for the quarter
$1.2 million (8 cents per diluted share) compared to an increase of $1.2 million
(8 cents per diluted share) last year. For the six months, net earnings were
$1.6 million lower (11 cents per diluted share) compared to an increase of $3.2
million (22 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 Six months ended
-------------------------- --------------------------
Feb. 29, Feb. 28, Feb. 29, Feb. 28,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES:
Manufacturing $ 323,566 $ 288,693 $ 636,439 $ 592,234
Recycling 117,177 76,561 219,339 155,136
Marketing & Trading 213,825 202,824 421,907 386,988
Corporate & Eliminations (16,944) (18,013) (27,634) (35,462)
----------- ----------- ----------- -----------
$ 637,624 $ 550,065 $ 1,250,051 $ 1,098,896
=========== =========== =========== ===========
OPERATING PROFIT (LOSS):
Manufacturing $ 15,616 $ 16,716 $ 33,336 $ 40,309
Recycling 2,277 (1,731) 2,872 (5,854)
Marketing & Trading 5,299 4,693 9,634 9,342
Corporate & Eliminations 163 (1,681) (355) (3,341)
----------- ----------- ----------- -----------
$ 23,355 $ 17,997 $ 45,487 $ 40,456
=========== =========== =========== ===========
</TABLE>
MANUFACTURING -
The Company's Manufacturing segment consists of the Steel Group and the Copper
Tube Division. Operating profit for the segment decreased 7% from last year's
second quarter while net sales increased 12%. The Steel Group's operating profit
was 31% below last year's second quarter. This was partially offset by
significantly better operating profit for the Copper Tube Division. Continuing
high levels of low-priced steel imports resulted in relatively low steel mill
selling prices. Also, margins were pressured by higher raw material costs as
well as lower profits in steel fabrication. Conversely, steel shipments
increased over the same period last year.
Page 10
<PAGE> 12
Steel and scrap prices are as reflected in the table below:
<TABLE>
<CAPTION>
Second Quarter
--------------
2000 1999
---- ----
<S> <C> <C>
Average mill selling price $307 $302
Average fabrication selling price 633 687
Average scrap purchase price 97 74
</TABLE>
Operating profit for the Company's four steel minimills was 20% below the prior
year. Mill shipments increased 16% to 455,000 from 391,000 tons, and tons rolled
were up 38% from last year because of the new rolling mill at SMI South Carolina
and stronger demand for steel products. Tons melted also significantly
increased. Margins were lower due to higher scrap prices. While the average mill
selling price was $5 per ton above last year, average scrap purchase costs were
higher by $23 per ton. Start up of the new automatic finishing line at the
Alabama minimill went well, whereas results at the new SMI South Carolina
rolling mill were weaker than anticipated.
Net sales in the fabrication businesses were comparable with the prior year's
second quarter. Operating profit, however, decreased due to lower average
selling prices (partially a function of product mix), and losses on some large,
complex structural steel projects. Fabricated steel shipments totaled 216,000
tons, a 9% increase from the prior year period. The average fab selling price
decreased $54 per ton.
In December 1999, the Company acquired substantially all of the assets of
Suncoast Steel Corp. of Naples, Florida, a rebar fabricator strategically
located to serve the metropolitan Tampa Bay and Miami markets. Also, the Company
continued to progress with its new castellated beam facility and product line as
an adjunct to its steel joist business.
Depreciation and amortization expense for the Steel Group increased by $4.6
million pretax from the prior year second quarter due to the new rolling mill in
South Carolina and new finishing line at SMI Alabama. The Company's interest
expense increased by $2.2 million from the prior year primarily because the
completion of these two projects by fiscal year end 1999 substantially ended
capitalization of interest expense, and short term rates have edged up.
The Copper Tube Division's operating profit more than doubled from the same
period last year due to better material spreads. Net sales increased by 47%.
Demand for plumbing and refrigeration tube continued to be buoyed by the strong
housing sector in the second quarter 2000. Copper tube shipments increased 20%
versus the second quarter last year, and production was 24% higher.
Page 11
<PAGE> 13
RECYCLING -
The Recycling segment reported an operating profit of $2.3 million for the
second quarter 2000, which represented its third consecutive profitable quarter
and a substantial improvement from the prior year period loss of $1.7 million.
Domestic demand was stronger because of higher capacity utilization by scrap
consumers. Prices were significantly better than the corresponding period last
year, although they were tempered by relatively high imports of ferrous raw
materials into the U.S. Consequently net sales increased 53% to $117 million.
Ferrous scrap tonnage processed and shipped increased 28%, and ferrous sales
prices were an average $105 per ton or 33% higher than a year ago. Nonferrous
shipments increased 18%, and the average nonferrous scrap price was 29% higher
than the prior year period. Total volume of scrap processed, including the Steel
Group processing plants, was 592,000 tons, an increase of 25% from the 474,000
tons processed during the prior year period.
MARKETING AND TRADING -
Operating income for the Marketing and Trading segment was 13% higher than the
prior year's second quarter, while net sales increased 5%. Global demand and
prices generally continued to recover, but were still mixed during the second
quarter 2000. Gross margins in steel marketing and distribution as well as steel
trading showed some improvement, however, tonnage was affected by anti-dumping
measures around the world. Markets for nonferrous metal products remained highly
competitive, but profitability was maintained due to the Company's diverse
product lines. Sales of industrial raw materials and products including ores,
minerals, ferrous raw materials and primary metals remained steady and
profitable despite continued margin pressures. The segment continued to broaden
in new product and geographic areas.
YEAR 2000 -
As described in its Form 10K report for the year ended August 31, 1999, the
Company had a comprehensive program to meet anticipated Year 2000 concerns. This
program was substantially completed by December 31, 1999. The Company has not
encountered any significant year 2000 problems.
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.
Page 12
<PAGE> 14
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.
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 second half fiscal year 2000 will be
stronger than the first half, due to both internal and external factors. The
Company's biggest challenge is to improve profit performance at the South
Carolina mill and the large structural fabrication business. Markets, generally
should strengthen. Demand from the construction, manufacturing and distribution
sectors of the U.S. economy remains strong, and markets in Europe and Asia are
gaining momentum.
Because of the global market improvement, potential anti-dumping action on some
of the Company's steel mill products, and the seasonal increase in construction,
management anticipates steel mill pricing improvements and wider manufacturing
margins. Steel mill production and shipments are also expected to increase. 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. Copper tube consumption in residential construction remains
robust; consequently, good demand is expected to continue.
As the third quarter began, ferrous and nonferrous scrap prices had declined
5-10% from recent highs, but appear to have stabilized. Domestic demand for
scrap should remain good. Export markets are sluggish, but ferrous scrap imports
apparently have declined. Competition for unprepared scrap will remain intense
but the Recycling segment should continue to produce solid results for the
second half of fiscal year 2000.
In Marketing and Trading, steel prices have rebounded off the bottom with most
of the improvement in flat rolled products. The overall global steel outlook
(including nonferrous semis), as well as markets for industrial products should
improve. The Company will continue to expand into new product and geographic
areas.
Page 13
<PAGE> 15
Longer term, good demand for construction related products and services is
expected to continue. Added spending for the nation's infrastructure (including
highways, bridges and airports, as well as schools) has begun to materialize.
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.
The Company's historically high capital investments over the past two years
should result in a meaningful increase in revenue growth and earnings power,
especially 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.
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 six months ended February 29, 2000 were $53.5 million compared to $43.9
million last year. Net cash flows used by operating activities was $78.5 million
compared with $32.3 million provided by operating activities in the prior year
period.
Depreciation and amortization increased during the first half of 2000 primarily
due to the capital projects at South Carolina and Alabama. Accounts receivable
increased partially due to higher sales in the first half of fiscal year 2000
than in the last half of fiscal 1999. The remainder of the increase was
primarily due to slower collection of retention and billings for large
structural jobs. Accrued expenses decreased $32.8 million primarily due to the
payment of incentive compensation and the funding of employee benefit plans
accrued at August 31, 1999.
Notes payable and commercial paper increased $99.0 million to supplement current
cash flows for funding working capital, capital expenditures and treasury stock
repurchases. The Company invested $26.1 million in property and equipment
primarily in the Steel Group at the South Carolina mill, and in its fabrication
operations. This was substantially less than the $84.2 million spent during the
prior year first half.
Page 14
<PAGE> 16
At February 29, 2000, there were 14,216,019 common shares issued and outstanding
with 1,916,564 held in the Company's treasury. Stockholders' equity was $428
million or $30.10 per share. During the first half of fiscal 2000, the Company
repurchased 408,400 shares of common stock at an average price of $30.87.
Net working capital was $295 million at February 29, 2000 compared to $291
million at August 31,1999. The current ratio was 1.7, slightly below August
31,1999. The Company's effective tax rate for the three months was 37.3%, the
same as the first half last year.
Long-term debt as a percent of total capitalization was 36.4% at February 29,
2000 compared to 37.5% at August 31, 1999. The ratio of total debt to total
capitalization plus short-term debt stood at 45.7%, higher than the 39.6% at
fiscal 1999 year end due to working capital requirements, capital expenditures
and treasury share repurchases.
Page 15
<PAGE> 17
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
At the registrant's annual meeting of stockholders held January 27,
2000, a total of 12,578,770 shares of common stock or approximately 87% percent
of those outstanding and entitled to vote were present in person or by proxy.
There was no solicitation in opposition to management's nominees and all such
nominees were elected as set forth in the following tabulation:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
------- --------- --------------
<S> <C> <C>
Albert A. Eisenstat 12,218,959 359,811
Anthony A. Massaro 12,215,619 363,151
</TABLE>
16
<PAGE> 18
Stockholders approved the proposal to adopt the Company's 1999
Non-Employee Director Stock Option Plan by the following vote:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
9,056,632 3,424,191 97,947
</TABLE>
Stockholders also approved the ratification of the appointment of
Deloitte & Touche LLP as auditors of the registrant for the fiscal year ending
August 31, 2000, by the following vote:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
12,518,489 50,204 10,077
</TABLE>
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
B. No reports on Form 8-K were filed during the quarter for which
this report is filed.
17
<PAGE> 19
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
March 24, 2000 /s/ William B. Larson
Vice President
& Chief Financial Officer
March 24, 2000 /s/ Malinda G. Passmore
Controller
18
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-START> SEP-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 17,709
<SECURITIES> 0
<RECEIVABLES> 371,135
<ALLOWANCES> (8,164)
<INVENTORY> 280,536
<CURRENT-ASSETS> 731,051
<PP&E> 823,262
<DEPRECIATION> (424,761)
<TOTAL-ASSETS> 1,145,031
<CURRENT-LIABILITIES> 435,791
<BONDS> 0
0
0
<COMMON> 80,663
<OTHER-SE> 347,256
<TOTAL-LIABILITY-AND-EQUITY> 1,145,031
<SALES> 1,250,051
<TOTAL-REVENUES> 1,250,051
<CGS> 1,093,485
<TOTAL-COSTS> 1,093,485
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 490
<INTEREST-EXPENSE> 12,672
<INCOME-PRETAX> 32,815
<INCOME-TAX> 12,224
<INCOME-CONTINUING> 20,591
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,591
<EPS-BASIC> 1.43
<EPS-DILUTED> 1.40
</TABLE>
