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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK
ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
--- THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED AUGUST 31, 1994
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
--- THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NO. 1-4304
COMMERCIAL METALS COMPANY
(Exact name of registrant as specified in its Charter)
DELAWARE 75-0725338
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
7800 STEMMONS FREEWAY, DALLAS, TEXAS 75247
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (214) 689-4300
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $5 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE COMMON STOCK ON NOVEMBER 15, 1994, HELD BY
NON-AFFILIATES OF THE REGISTRANT BASED ON THE CLOSING PRICE OF $26.00 PER SHARE
ON NOVEMBER 15, 1994, ON THE NEW YORK STOCK EXCHANGE WAS $394,466,098.
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK, AS OF NOVEMBER 15, 1994: COMMON STOCK, $5.00 PAR -- 15,171,773.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE FOLLOWING DOCUMENT ARE INCORPORATED BY REFERENCE INTO THE LISTED
PART OF FORM 10-K:
REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 26, 1995 -- PART III.
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PART I
ITEM 1. BUSINESS
Commercial Metals Company was incorporated in 1946 in Delaware as a
successor to a secondary metals recycling business 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
"registrant" as used herein include Commercial Metals Company and its
consolidated subsidiaries.
The Company considers its businesses to be organized into four
segments - (i) Manufacturing, (ii) Recycling, (iii) Marketing and Trading, and
(iv) Financial Services. With the exception of the Financial Services segment,
the Company's activities are primarily concerned with metals related
activities. Financial information for the last three fiscal years concerning
the segments is incorporated herein by reference from "Note 14 Business
Segments," of the Notes to Consolidated Financial Statements at Part II, Item 8.
THE MANUFACTURING SEGMENT
The manufacturing segment is the registrant'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 three steel minimills, twelve steel fabricating
plants, one steel joist manufacturing facility, three fence post manufacturing
plants, three metals recycling plants, two railcar rebuilding facilities and
six warehouse stores which sell supplies and equipment to the concrete
installation trade.
The Company endeavors to operate all three 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 $70.5 million or 64%
of the Company's total capital expenditures have been for minimill projects.
This emphasis on productivity improvements is reflected in increases in tons of
steel melted, rolled and shipped from the minimills during each of the last
three years as follows:
Fiscal 1992 Fiscal 1993 Fiscal 1994
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Tons Melted 935,000 1,001,000 1,122,000
Tons Rolled 953,000 1,009,000 1,207,000
Tons Shipped 1,033,000 1,138,000 1.247,000
The Company's largest steel minimill, operated by Structural Metals,
Inc. ("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. SMI Texas sells primarily to the construction, service center,
energy, petrochemical, and original equipment manufacturing industries. Its
primary markets are located in Texas, Louisiana,
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Arkansas and Oklahoma although products were shipped to approximately 29 states
and Mexico. Record tonnages were melted at SMI Texas during fiscal 1994 as a
result of continuing productivity gains from a new bottom tap alternating
current electric arc furnace placed in service in late fiscal 1992. The new
furnace increased capacity from 95 to 120 tons per heat and additional
operating experience during 1994 resulted in shortened processing time per
heat. The late fiscal 1993 start up of a new transformer and related
electrical equipment also improved melt shop productivity during 1994.
SMI Steel, Inc. ("SMI Alabama"), a steel minimill in Birmingham,
Alabama, was acquired in 1983. A substantial program to modernize and improve
productivity at SMI Alabama has followed with over $105 million of capital
expenditures from acquisition through 1994. Installation and start up of a new
direct current electric furnace melt shop was substantially complete by late
fiscal 1994. This project is the largest single capital expense in the
registrant's history with a cost of approximately $30 million. SMI Alabama
manufactures primarily larger size products than SMI Texas such as mid-size
structural including angles, channels, up to eight inch wide flange beams and
special bar quality rounds and flats. Customers include the construction,
manufacturing, steel warehousing, original equipment manufacturing and
fabricating industries in the primary market areas of Alabama, Georgia,
Tennessee, North and South Carolina, and Mississippi.
The primary raw material for both SMI Texas and SMI Alabama 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. SMI Texas and SMI
Alabama also consume large amounts of electricity and natural gas, both of
which are believed to be readily available at competitive prices.
Both the SMI Texas and SMI Alabama 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 is approximately 750,000 tons per year. SMI
Alabama's annual capacity is approximately 500,000 tons following start up of
the new melt shop.
Operations began in 1987 at a third, much smaller mill located near
Magnolia, Arkansas, ("SMI Arkansas"). No melting facilities are located at SMI
Arkansas since 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, the other two 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, and a third location acquired in fiscal
1994 at Brigham City, Utah. Because of this mill's lack of melting capacity,
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 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 for
fabrication may be obtained from unrelated vendors as well as Company owned
mills, primarily SMI Texas. 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
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Waco, as well as Baton Rouge and Slidell, Louisiana and Magnolia and Hope,
Arkansas. Fabricated products are used primarily in the construction of
commercial and non-commercial buildings, industrial plants, power plants,
highways and dams. Sales of fabricated steel are generally to construction
contractors on a competitive bid basis. Safety Railway Service, with locations
in Victoria, Texas, and Tulsa, Oklahoma, 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. A secondary metals
recycling plant in Austin, Texas with smaller feeder facilities in nearby Round
Rock and Seguin, Texas is operated as part of the Steel Group due to the
predominance of secondary ferrous metals sales to the nearby SMI Texas
minimill. The joist manufacturing facility, SMI Joist Company, located in
Hope, Arkansas, manufactures steel joists and decking for roof supports using
steel obtained primarily from the Steel Group's minimills. Joist consumers are
construction contractors. Joists are generally made to order and sales, which
may include custom design and fabrication, are primarily obtained on a
competitive bid basis.
In early fiscal 1994 the Company consummated a purchase of assets from
a seller of concrete related supplies in Texas. The purchase expanded the
Company's position in the sale of supplies and sale or rental of equipment to
the concrete installation trade in Texas. This business operates under the
Shepler's name with warehouse locations in Austin, Beaumont, Houston, San
Antonio and Waco, Texas.
Subsequent to fiscal 1994 year end, on September 27, the Company
announced that it had entered into an Agreement to acquire Owen Steel Company,
Inc. and affiliated companies headquartered in Columbia, South Carolina. This
transaction was completed November 15, 1994. The Company paid approximately
$50 million, one-half in cash and the balance by issuance of 932,301 shares of
the Company's Common Stock to certain selling shareholders. The Company also
provided funds for the retirement of approximately $32 million of Owen debt at
the Closing. The purchase price may be subject to further post-closing
adjustments. Owen's successor company, SMI-Owen Steel Company, Inc., will
operate as a part of the Steel Group. The acquisition includes a minimill at
Cayce, near Columbia, South Carolina, with facilities similar to the SMI Texas
minimill. The SMI-Owen minimill has an annual melting capacity of about
350,000 tons and rolling capacity of approximately 250,000 tons. Additionally
the Company acquired six rebar fabricating shops, five structural fabrication
shops, two joist manufacturing plants, three scrap metal processing facilities,
and one construction supply company operation, located in South Carolina, North
Carolina, Virginia, Georgia and Florida. The acquisition expands the Steel
Group's manufacturing and fabrication network into the southeastern United
States and will increase the Company's annual steel production capacity to
approximately 1.7 million tons and steel fabrication capacity to over 500,000
tons. The related scrap metal processing operations which will operate as a
part of the Steel Group are expected to process approximately 155,000 tons per
year of scrap metal, primarily for melting at the nearby SMI-Owen minimill.
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 45,000,000 pounds per year.
Demand for copper tube is dependent mainly on the level of new residential
construction and renovation.
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No single customer purchases ten percent or more of the Steel Group or
Howell's production. The nature of the products sold in the manufacturing
segment are, with the exception of the joist and some fabrication jobs, not
characteristic of a long lead time order cycle. Orders are generally filled
promptly and as a result the Company does not believe backlog levels are a
significant or reliable factor in evaluating the operations.
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 27 metal recycling plants (excluding three such facilities
operated by the CMC Steel Group as a part of the manufacturing segment) and
Commercial Metals Railroad Salvage Company which dismantles and recovers steel
rail, track components and other materials from obsolete or abandoned
railroads.
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 1,160,000 tons of
scrap metal during fiscal 1994. Ferrous metals comprised the largest tonnage of
metals recycled at just over 1,000,000 tons, an increase from 919,000 the prior
year, followed by approximately 158,000 tons of non-ferrous metals, primarily
aluminum, copper and stainless steel, up from 145,000 the prior year. The
Company also purchased and sold an additional 200,000 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 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 four large shredding machines capable of
pulverizing obsolete automobiles or other ferrous metal scrap. One additional
shredder is operated by the manufacturing segment. A typical recycling plant
includes several acres of land used for segregating, 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.
Recycled metals are sold to steel mills and foundries, aluminum sheet
and ingot manufacturers, brass and bronze ingot makers, copper refineries and
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.
During 1994 this segment acquired the assets of two scrap metal
processing facilities. The first in Vinton, a suburb of El Paso, Texas
included the fifth shredder operated by the Company and a 105 acre site. The
second purchase was of equipment and machinery only from a Jacksonville,
Florida operation. The Jacksonville assets will be primarily utilized at the
Company's existing Jacksonville
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facility. A small facility which handled only non-ferrous metals and was
located on leased premises in Albuquerque, New Mexico was closed during the
year.
Railroad materials, primarily steel rail, are obtained by Commercial
Metals Railroad Salvage Company from dismantling work it performs on abandoned
rail lines acquired from railroads. Business is largely dependent on the pace
of Interstate Commerce Commission approval of railroad abandonments. Used rail
may be sold for relaying as usable track, rerolling, primarily by the Steel
Group's SMI Arkansas operation, or melting by steel mills.
No single source of material or customer of the recycling segment
represents a material part of 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 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. Relatively high
prices have recently caused some minimills to supplement purchases of scrap
with direct reduced iron and pig iron.
THE MARKETING AND TRADING SEGMENT
The marketing and trading segment buys and sells primary and secondary
metals and other commodities and products 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 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; Englewood Cliffs, New
Jersey; Great Neck, New York; Los Angeles; Hurstville near Sydney, Australia;
Singapore; Zug, Switzerland; Hong Kong and Tokyo. The Company also maintains
representative offices in Bangkok, Sao Paulo, 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 commodity related 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,
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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 commodity markets and hedges only firm commitments not anticipated
transactions. During the past fiscal year over 1.7 million tons of steel
products were sold by the marketing and trading segment despite a slow down in
demand from China, a major buyer during the 1993 fiscal year. Continuing
economic weakness and instability in eastern Europe and the Commonwealth of
Independent States restricted sales activity in those markets but increased the
availability of steel and other metal products. The 1994 year saw sales
continue to increase in Australia, South Korea and parts of Southeast Asia.
The Australian operation opened a just-in-time steel warehousing business for
steel imports.
THE FINANCIAL SERVICES SEGMENT
This segment is comprised of CMC Finanz AG ("Finanz"), a wholly owned
foreign financial services subsidiary and also includes activities involving
short term, temporary investments of the Company. Finanz, located in Zug,
Switzerland, was established with approval of the Swiss Federal Banking
commission in accordance with the applicable provisions regarding financial
institutions subject to the Swiss banking law in 1984. Finanz is permitted to
conduct most activities customarily carried on by commercial banks in
Switzerland except that it cannot solicit and accept deposits, with limited
exceptions, from individuals. Finanz emphasizes commercial banking services
related to financing international transactions, particularly those activities
of CMC Trading AG. Import and export financing, trade and project financing of
commodity-related transactions, discounting of trade receivables and drafts,
opening letters of credit and providing direct loans are typical activities.
Although Finanz is believed to be one of the larger foreign controlled
bank-like institutions operating under the applicable Swiss regulatory
framework with approximately $23,535,000 of stockholders' equity, it is small
compared to most other banks and some financial services companies offering all
or more of the same or similar services. The ability of Finanz to successfully
compete depends on referral of business opportunities from the Company's
marketing and trading operations. Finanz has approximately $200,000,000 in
credit facilities under formal and informal arrangements with major
international banks, primarily in Europe. A portion of this borrowing capacity
may also be periodically utilized by CMC Trading AG and other foreign
affiliates in conjunction with their marketing and trading functions. Periodic
fluctuations in prevailing interest rates will impact the profitability of the
segment. Most loans are matched as to currency and maturity with offsetting
borrowings. Some loans provide recourse to third parties such as major banks
under guarantees or standby letters of credit. In addition, CMC Finanz AG has
established policies to limit exposure to potential loan losses both
geographically and by individual borrowers. No single source of borrowing or
loans to or by the entity is considered material to the consolidated financial
statements as a whole. The loan loss reserve at year ended August 31, 1994 of
$940,000 may be considered small when compared to the average loan amount but
the entity has never experienced a loan loss. At year ended August 31, 1994
Finanz borrowings amounted to $50,912,000, all due within one year.
COMPETITION
The Company's steel manufacturing, steel fabricating, and copper tube
manufacturing businesses compete with regional, national and foreign
manufacturers and fabricators of steel and copper. Price, quality and service
are the primary methods of competition. The Company does not
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produce a significant percentage of the total national output of these products
compared with its competitors but is considered a substantial supplier in the
markets near its facilities.
The Company believes the recycling segment is among the largest
entities recycling nonferrous secondary metals and is also a major regional
processor of ferrous scrap. The secondary metals business is subject to
cyclical fluctuations depending upon the availability and price of unprocessed
scrap metal and the demand in steel and nonferrous metals consuming industries.
All phases of the Company's marketing and trading business are highly
competitive. Many of the marketing and trading segment's products are standard
commodity items. The principal elements of competition are price, quality,
reliability, financial strength, and additional services. This segment
competes with other domestic and foreign trading companies, some of which are
larger and may have access to greater financial resources or be able to pursue
business without regard for the laws and regulations governing the conduct of
corporations subject to the jurisdiction of the United States. The Company
also competes with industrial consumers who purchase directly from suppliers
and importers and manufacturers of semi-finished ferrous and nonferrous
products.
As described in the narrative on the Financial Services segment, that
segment is not considered a significant factor in its market and is subject to
worldwide competition from sources with much greater access to capital and
customer base.
ENVIRONMENTAL MATTERS
Compliance with environmental laws and regulations is a significant
factor in the Company's business. The Company is subject to local, state,
federal and supranational environmental laws and regulations concerning, among
other matters, solid waste disposal, air emissions, waste and stormwater
effluent and disposal and employee health. The Company's manufacturing and
recycling operations produce significant amounts of by-products, some of which
are handled as industrial waste or hazardous waste. For example, the electric
arc furnace ("EAF") dust generated by the Company's minimills is classified as
a hazardous waste by the Environmental Protection Agency (EPA) because of
lead, cadmium and chromium content and requires special handling and recycling
for recovery of zinc or disposal. Additionally the Company's scrap metal
recycling facilities operate five shredders for which the primary feed
materials are automobile hulks and obsolete household appliances. Approximately
twenty percent (20%) of the weight of an automobile hulk consists of material
(shredder fluff) which remains after the segregation of ferrous and saleable
non-ferrous metals. Federal environmental regulations require shredder fluff
to pass a toxic leaching test to avoid classification as a hazardous waste.
The Company endeavors to have hazardous contaminants removed from the feed
material prior to shredding and as a result the Company believes the shredder
fluff generated is properly not considered a hazardous waste. Should the laws,
regulations or testing methods change with regard to EAF dust processing or
shredder fluff disposal, the Company may incur additional significant
expenditures. To date, the Company has not experienced difficulty in
contracting for recycling of EAF dust or disposing of shredder fluff in
municipal or private landfills.
The Company may also be required from time to time to clean up or take
certain remediation action with regard to sites formerly used in connection
with its operations. Furthermore, the Company may be required to pay for a
portion of the costs of clean up or remediation at sites the Company never
owned or on which it never operated if it is found to have arranged for
treatment or disposal of hazardous substances on the sites. See Item 3. Legal
Proceedings. The Company has been named a potentially responsible party (PRP)
at several Superfund sites because the EPA contends that the Company and other
PRP scrap dealers are liable for the cleanup of those sites solely as a result
of
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having sold scrap metal to unrelated manufacturers for recycling as a raw
material in the manufacture of new products. The Company's position is that an
arms length sale of valuable scrap metal for use as a raw material in a
manufacturing process over which the Company exercises no control cannot,
contrary to EPA's assertion, constitute "an arrangement for disposal or
treatment of hazardous substances" within the meaning of federal law. If the
EPA's position is consistently upheld by the courts and no clarification or
amendment of the law is provided by legislative bodies, the Company believes
the possible liability arising from the sale of secondary metals would reduce
recycling rates for metals and other recyclable materials in general. In
particular, the Company believes that sellers of secondary or recycled metals
could be at material disadvantage compared to sellers of "virgin" ingot from
mining operations because the EPA's position apparently excludes suppliers of
virgin metals from liability for sales of those materials to the same
manufacturers for use, often interchangeably, in the same manufacturing
process. The Company believes this result is contrary to public policy
objectives and federal and state legislation encouraging recycling and
promoting the use of recycled materials.
New federal, state and local laws, regulations and changing
interpretations, together with uncertainty regarding adequate control levels,
testing and sampling procedures, new pollution control technology and cost
benefit analysis based on market conditions are all factors which impact the
Company's future expenditures to comply with environmental requirements. It is
not possible to predict the total amount of capital expenditures or increases
in operating costs or other expenses or whether such costs can be passed on to
customers through product price increases. During fiscal year 1994, the
Company incurred environmental costs of $1,451,000 all of which was expensed.
The Company believes that it is in material compliance with currently
applicable environmental laws and regulations and does not anticipate material
capital expenditures for new environmental control facilities during fiscal
1995.
EMPLOYEES
As of October, 1994, the Company had 4,353 employees. Approximately
3,064 were employed by the manufacturing segment, 997 by the recycling segment,
231 by the marketing and trading segment, 3 by the financial services segment,
36 in general corporate management and administration with 22 employees
providing service functions for divisions and subsidiaries. Production
employees at one metals recycling plant are represented by a union for
collective bargaining. The Company believes that its labor relations are
generally good. The Owen acquisition, completed after 1994 fiscal year end,
will add approximately 1,200 employees in the manufacturing segment.
ITEM 2. PROPERTIES
The SMI Texas steel minimill is located on approximately 554 acres of
land owned by the Company. Facilities including buildings occupying
approximately 650,000 square feet, are used for manufacturing, storage, office
and related uses. SMI Alabama's steel mill in Birmingham is located on
approximately 35 acres with buildings occupying approximately 435,000 square
feet used for manufacturing, storage, office and related use. The SMI Arkansas
facility at Magnolia is located on approximately 104 acres with buildings
occupying approximately 130,000 square feet. Approximately 30 acres of the
Alabama mill property and all Arkansas mill property is leased in conjunction
with revenue bond financing and may be purchased by the Company at the
termination of the leases for a nominal sum. The steel fabricating operations
including the fence post and joist operations own approximately 325 acres of
land and lease approximately 50 acres of land at various locations in Texas,
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Louisiana, Arkansas, and Utah. Howell Metal owns approximately 18 acres of
land with buildings occupying about 200,000 square feet in New Market,
Virginia.
The Company's recycling plants occupy in the aggregate approximately
355 acres owned by the Company located at Austin, Beaumont, Dallas, Galveston,
Houston, Lubbock, Odessa, Victoria and Vinton, all in Texas; as well as the
Jacksonville, Lake City, Orlando, and Tampa, Florida; Chattanooga, Tennessee;
Springfield, Missouri; and Burlington, North Carolina plants. It leases the
real estate at Clute, Corpus Christi and Midland, Texas; Ocala, and Port Sutton
(Tampa) Florida; and Shreveport, Louisiana. The smaller of two locations at
Beaumont and Victoria, Texas, are leased. The Fort Worth recycling plant is
partially owned and partially leased.
The corporate headquarters, all domestic marketing and trading offices
and all foreign offices occupy leased premises.
The leases on the leased properties described above will expire on
various dates within the next ten years. Several of the leases have renewal
options and the Company has had little difficulty in renewing such leases as
they expire. The minimum annual rental obligation of the Company for real
estate operating leases in effect at August 31, 1994, to be paid during fiscal
1995, is approximately $2,518,000. The Company also leases a portion of the
equipment used in its plants. The minimum annual rental obligation of the
Company for equipment operating leases in effect at August 31, 1994, to be paid
during fiscal 1995, is approximately $1,831,000.
ITEM 3. LEGAL PROCEEDINGS
As of August 31, 1994, the Company or its affiliates has received
notices from the United States Environmental Protection Agency (EPA) and an
agency of the State of Texas (TNRCC) with similar responsibility that the
Company and numerous other parties are considered potentially responsible
parties (a PRP) and may be obligated under the Comprehensive Environmental
Response Compensation and Liability Act of 1980 (CERCLA) or similar state
statute to pay for the cost of remedial investigation, feasibility studies and
ultimately remediation to correct alleged releases of hazardous substances at
eight EPA and one TNRCC designated locations. The Company is contesting or
intends to contest its designation as a PRP with regard to several of the
sites. The locations, none of which involve real estate ever owned or on which
operations were conducted by the Company, are commonly referred to by the EPA
as the Peak Oil Site (Tampa, FL), the Metcoa Site (Pulaski, PA), the NL
Industries/Taracorp Site (Granite City, IL), the 62nd Street Site (Tampa, FL),
the Sapp Battery Site (Cottondale, Florida), the Interstate Lead Company
("ILCO") Site (Leeds, Alabama), the Poly-Cycle Industries Site (Techula, Texas)
and the Taylor Road Site (Tampa, Florida), and by the TNRCC as the Jensen Drive
Site (Houston, TX). The Company has periodically received information requests
with regard to other sites which are apparently under consideration by the EPA
as existing or potential CERCLA clean-up sites. It is not known if any demand
will ultimately be made against the Company as a result of those inquiries.
The EPA has notified the Company and other alleged PRPs that under
Sec. 106 of CERCLA it could be subject to a maximum penalty fine of $25,000 per
day and the imposition of treble damages if they refused to clean up the Peak
Oil, Metcoa, Sapp Battery, and NL/Taracorp sites as ordered by the EPA. The
Company is presently participating in a PRP organization at the Peak Oil and
Sapp Battery sites and, although reserving the right to contest its PRP status
does not believe that the EPA will pursue any fine against it so long as it
continues to participate in the PRP groups. The Company is contesting its
designation as a PRP at the Metcoa and NL/Taracorp sites and believes it has
adequate defenses to any attempt by the EPA to impose fines in those matters.
In addition, the Company and 25 other defendants were sued in April, 1990,
(United States of America v. Marvin Pesses, et al., U.S.
9
11
District Court, W. Dist. Penn.) by the EPA under Sec. 107 of CERCLA to recover
past and future response costs incurred by the EPA at the Metcoa Site. The EPA
contends that the Company and other PRP scrap dealers are liable for the
cleanup because they sold scrap metal for raw material in the manufacture of
new products. The manufacturing process employed by the buyer of the scrap
metals resulted in the release of contaminants at the site of the buyer's
operation. The Company's position is that arms-length sales of valuable scrap
metal for use as a raw material in a manufacturing process over which the
Company exercises no control cannot, contrary to the EPA's assertion,
constitute "an arrangement for disposal or treatment of hazardous substances"
within the meaning of CERCLA. The District Court has granted EPA's Motion for
Partial Summary Judgment on the issue and ruled that Defendants are deemed to
be "responsible parties" within the meaning of 42 U.S.C. Sec. 9607(a). The
Company and defendants are considering options to appeal the ruling. On July
20, 1993, EPA issued a second order under Sec. 106 of CERCLA for the
excavation, removal and treatment, or disposal of dust, soil and debris
containing hazardous substances at the Metcoa Site. The Company, along with
other recipients of the letter, agreed to do some but not all of the work
requested by the order. In particular, the Company along with other recipients
of the letter, declined to handle any cleanup of radioactive materials at the
Site. The Company's position is that it has no obligation to clean up any of
the radioactive material under the Third Circuit law set forth in United States
v. Alcan Aluminum Corp., 964 F.2d 252 (3d Cir. 1992) because it did not send
any radioactive materials to the Site. The district court has scheduled the
case for trial on the issues of joint and several liability and allocation of
damages in early 1996.
An adverse ruling in the Metcoa Site litigation and similar cases, if
ultimately upheld, could have a significant adverse effect on companies, such
as the Company, that have historically recycled materials by purchasing and
preparing scrap metals and other materials for resale to manufactures for use
as a supplement to or in lieu of virgin materials in manufacturing processes.
The impact of an adverse ruling would, in the opinion of the Company, result in
a reduction of recycling rates for metals and other recyclable materials and be
contrary to public policy objectives in federal and state legislation
encouraging recycling and the use of recycled materials.
In November, 1993, the Federal Energy Regulatory Commission ("FERC")
entered an Order (the "FERC Order") affirming in part and reversing in part a
1989 decision and proposed order of a administrative law judge affirming in
part, reversing in part and remanding for further consideration a Remedial
order issued in 1986 by the Office of Hearings and Appeals of the Department of
Energy to RFB Petroleum, Inc. (RFB) and CMC Oil Company, a wholly-owned
subsidiary (CMC Oil). The FERC Order finds CMC Oil liable for alleged
overcharges constituting violations of crude oil reseller regulations arising
from the purchase and sale of crude oil in alleged joint ventures between CMC
Oil and RFB totaling approximately $1,330,000 plus interest from their
occurrence (December, 1977, to January, 1979) to present as calculated under
the Department of Energy's interest rate policy. Utilizing that interest
calculation, interest accrued through August, 1994, is estimated to be
approximately $5,600,000. In January, 1994, CMC Oil filed a complaint in
United States District for the Southern District of Texas seeking judicial
review to have enforcement of the FERC Order enjoined. The government filed a
counterclaim seeking enforcement of the FERC Order. Motions for summary
judgment have been filed by both parties.
While the Company is unable to estimate the ultimate dollar amount of
exposure to loss in connection with the above-described environmental
litigation, government proceedings, and disputes that could result in
additional litigation, some of which may have a material impact on earnings and
cash flows for a particular quarter, it is the opinion of the Company's
management that the outcome of the suits and proceedings mentioned, and other
miscellaneous litigation and proceedings now pending, will not have a material
adverse effect on the business or the consolidated financial position of the
Company.
10
12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The table below summarizes the high and low sales prices reported on
the New York Stock Exchange for the Company's common stock and cash dividends
paid for the past two fiscal years.
Price Range
1994 of Common Stock
Fiscal ---------------------- Cash
Quarter High Low Dividends
- - ---------------------------------------------------------------------------------------------------
1st $ 30 $ 25 7/8 10c.
2nd 28 3/4 26 12c.
3rd 29 21 12c.
4th 27 21 12c.
Price Range
1993 of Common Stock
Fiscal ---------------------- Cash
Quarter High Low Dividends
- - ---------------------------------------------------------------------------------------------------
1st $ 19 7/8 $ 16 3/4 9c.
2nd 21 5/8 18 1/4 10c.
3rd 23 1/4 20 10c.
4th 28 1/2 23 10c.
On November 22, 1993, the Company declared a four-for-three stock
split in the form of a 33 1/3% stock dividend on the Company's common stock
payable December 27, 1993 to shareholders of record December 6, 1993. All
share and per share data have been adjusted for the stock split.
Since August 3, 1982 the Company's common stock has been listed and
traded on the New York Stock Exchange. Prior to that date and since 1959 the
Company's common stock was traded on the American Stock Exchange. The number
of shareholders of record of the registrant's common stock at November 15,
1994, was approximately 2,210.
ITEM 6. SELECTED FINANCIAL DATA
The table below sets forth a summary of selected consolidated
financial information of the Company for the periods indicated:
11
13
FOR THE YEARS ENDED AUGUST 31,
1994 1993 1992 1991 1990
-------- --------- --------- --------- ---------
(Dollars in thousands except per share amounts)
Net Sales 1,657,810 1,558,349 1,156,203 1,150,075 1,124,126
Net Earnings 26,170 21,661 12,510 12,015 25,920
Net Income Per Share 1.75 1.46 .87 .84 1.70
Total Assets 604,877 541,961 515,738 460,757 415,746
Long-term Debt 72,061 76,737 87,221 45,547 54,380
Cash Dividend Per Share .46 .39 .39 .39 .38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED RESULTS
(in millions except share data)
Year ended August 31,
- - ---------------------------------------------------------------
1994 1993 1992
----------------------------------
Revenues $ 1,666 $ 1,569 $ 1,166
Net earnings 26.2 21.7 12.5
Cash flow 61.7 53.6 39.8
International sales 587 694 377
As % of total 35% 45% 33%
LIFO effect on net earnings (6.2) .1 1.1
Per share (.42) .01 .08
LIFO reserve 21.3 11.7 12.0
% of inventory on LIFO 78% 65% 88%
Significant events affecting the Company this year:
o Startup costs of $3 million (pre-tax) for the new $30 million Direct
Current electric furnace melt shop at the Birmingham minimill.
o LIFO effect decreased net earnings $6.2 million.
o Cash flow from operations was a record $61.7 million.
o Company repurchased 748,100 shares of its common stock.
o Board of Directors declared a four-for-three stock split in the form of a
33 1/3% stock dividend.
o Board of Directors increased the quarterly cash dividend 23% to 12 cents
per share on the post split shares.
o Acquisitions:
- Acquired assets of two scrap metal processing facilities at the following
locations:
Vinton (El Paso), Texas
Jacksonville, Florida
- Acquired assets of a steel fence post manufacturing and marketing
operation in Brigham City, Utah.
- Acquired the assets of Shepler's, expanding our presence in the concrete
related products business.
- Shortly after the year closed the Company announced a significant
expansion in its steel manufacturing and fabrication operations with the
signing of an agreement and plan of merger to acquire Owen Steel Company,
Inc. and related entities headquartered in Columbia, South Carolina.
SEGMENTS
Revenues and operating profit by business segment are shown in the following
table:
(in millions) Year ended August 31,
- - ---------------------------------------------------------------
1994 1993 1992
----------------------------------
Revenues:
Manufacturing $ 598 $ 487 $ 452
Recycling 342 290 236
Marketing and Trading 758 818 497
Financial Services 3 4 4
Operating profit (loss):
Manufacturing 37.7 32.5 33.0
Recycling 5.0 .6 (8.1)
Marketing and Trading 13.5 14.3 8.0
Financial Services 1.7 1.8 1.8
MANUFACTURING
The Manufacturing segment includes the CMC Steel Group and Howell Metal
Company.
Steel Group revenues for 1994 were a record $545 million, 27% higher
than last year. Tons shipped were up 15%. The record revenues were fueled by
strong demand and a 10% increase in selling prices. Operating profits for 1994
were $34 million, up 33% over a year ago despite the Birmingham melt shop
startup, higher raw material inventory costs and a pre-tax LIFO charge of $6.1
million.
Steel mill shipments were 1.25 million tons, an increase of nearly 10%
over last year. Operating profits were up 28% over last year due to the strong
performance of SMI-Texas and SMI-Arkansas. SMI-Birmingham operating profits
were lower because of the startup of the new melt shop.
Steel fabrication revenues and shipments were up over last year by 48%
and 23%, respectively. Operating profits increased 70% compared to a year ago.
In September 1993 we acquired the assets of Shepler's, gaining additional
locations to complement our concrete related product warehouse business. In
June 1994, the division purchased substantially all the assets of CS&W of Utah,
Inc. in Brigham City, Utah, a small steel fence post manufacturing and
marketing operation.
On September 27, 1994 the Company announced the signing of an agreement
and plan of merger with Owen Steel Company, Inc. and related entities
headquartered in Columbia, South Carolina. The purchase price is approximately
$50 million (payable one half each in cash and common stock), subject to
adjustments based upon the net worth of Owen at closing. The Company will also
provide funds for the retirement of $32 million of Owen debt at closing. The
transaction is subject to, among other things, customary closing conditions and
certain regulatory approvals. The acquisition will be accounted for under the
purchase method of accounting.
Owen operates a minimill and associated steel fabrication, joist and
recycling plants in the southeast United States. The Owen minimill has 350,000
tons per year melting capacity and 250,000 tons rolling capacity. Owen
fabrication operations include six rebar fabrication shops, five structural
fabrication shops, two joist plants and one construction supply company. Owen
also processes approximately 155,000 tons per year of scrap metals at three
locations.
Copper Tube Division shipments were 4% higher than a year ago, however,
selling prices declined 9% from last year due to slower residential housing
starts and some overproduction in the copper water tube industry. Operating
profit was lower than a year ago.
RECYCLING
Operations in the Recycling segment improved significantly over last year's
modest results. Revenues for fiscal 1994 were up 18% over last year and tonnage
processed and shipped was up 15%. Operating profits for fiscal 1994 were $5
million despite a LIFO charge of $2.4 million (pre-tax). Last year operating
profits were $600 thousand.
Demand for steel scrap was strong during most of the fiscal year. Prices
were strong during the first half of the year, but fell dramatically during the
third quarter before rebounding in the fourth quarter to near the year's high.
Tonnage processed and shipped was up 17% over last year.
Nonferrous prices were weak during the first half of the year, but moved
steadily higher during the last half due to brisk demand and generally tight
supplies. Tonnage processed and shipped was 9% higher than a year ago.
15
In April 1994, the Secondary Metals Processing Division purchased
substantially all the operating assets of Proler International Corp.'s scrap
processing facility at Vinton, Texas near El Paso. The Vinton facility shredder
is the fifth shredder CMC operates in its thirty recycling facilities. In
August 1994, the Secondary Metals Processing Division purchased the working
assets of Tri-State Recycling Corp.'s scrap metal processing facility in
Jacksonville, Florida. These transactions, either individually or in the
aggregate were not significant to the consolidated company.
MARKETING AND TRADING
Operating profit for the Marketing and Trading segment was 6% lower than last
year, primarily attributable to a 24% decline in our global steel shipments.
Revenues from steel products were 19% lower. The International Division's
record steel shipments in fiscal 1993, the major portion of which went to
China, was not sustained in fiscal 1994 due to weaker steel markets overseas.
Shipments and revenues from nonferrous semis improved significantly, however,
including imports into North America. Industrial raw materials shipments and
revenues were relatively unchanged.
FINANCIAL SERVICES
Revenues were 25% lower than last year, but operating profit was only 3% lower.
There was a further shifting in emphasis toward bolstering intercompany
transaction financing and away from third party financings. Profits were aided
by increasing U.S. dollar interest rates. Letter of credit commission income
declined, reflecting lower business volume in the Marketing and Trading
segment, as well as a decrease in fee income from the closure of our portfolio
management department. Operating expenses were lower due to a reduction in
personnel.
CORPORATE
The increase in corporate administrative expenses during fiscal 1994 was due
primarily to increased legal expenses and to lower inter-division allocations.
In addition, there was a $1.3 million credit for interest income last year
which did not recur in fiscal 1994.
OUTLOOK
The favorable outlook for fiscal 1995 is predicated on moderate growth in the
U.S., some strengthening in Mexico, a broadening of the European recovery, a
slight turnaround in Japan, another year of slower growth in China and good
demand in the rest of the Pacific Rim. Metal exports from the C.I.S. will
continue to be a major market factor. Worldwide steel consumption should grow
in 1995. The American manufacturing sector remains vibrant and business
investment is healthy. Single family housing looks weaker but apartment
building is picking up. Commercial and industrial construction are strong and
spending on highways and bridges appears to be accelerating. Regionally, we
expect the Southwest and Southeast to maintain a good business level. Our order
flow is good and steel prices and volume in our major markets should be firm as
well as ferrous scrap demand. Nonferrous metals supply/demand fundamentals are
stronger. Progress will continue with the startup of the Birmingham melt shop,
and we expect improved performance in the next fiscal year. The major risk
appears to be that increasing interest rates could thwart economic growth, but
business conditions are generally positive.
1993 COMPARED TO 1992
SEGMENTS
MANUFACTURING
Steel Group revenues for 1993 were $428 million, 8% higher than last year. Tons
shipped were up 6%. Operating profits for 1993 were over $25 million compared
to $24 million, up 6% over a year ago. Strong shipments, increased productivity
and a 1% increase in average prices were partially offset by rising steel scrap
prices.
Steel mill shipments increased 10% over last year. Melt shop and rolling
mill production exceeded one million tons. Operating profit for the mills,
however, was down 5% from a year ago.
Steel fabrication operations generally improved as prices appeared to
have bottomed. Revenues and tons shipped increased about 7% compared to last
year. Operating profit was 17% higher. Concrete related products operations
expanded with the purchase of six Shepler warehousing operations in Texas in
September 1993. These acquisitions were not significant to the consolidated
company.
Copper Tube Division shipments were up 16% over last year and reached
record levels as a result of the additional production from the new casting
facility and draw bay. Net sales, however, were up only 5% as average selling
prices declined 10%. Gross margins and operating profits were also lower than
last year; however, last year was a near record year for the division.
RECYCLING
Revenues for 1993 were up 23% for the year. Tonnage shipped from our own
facilities was up 17% over last year and exceeded one million tons for the
first time. The segment ended the year with a modest profit, but it was a
significant improvement over the $8.1 million loss last year. Ferrous prices
have been robust and by year-end were at the highest levels in four years.
Nonferrous prices, however, at year-end were nearing six-year lows due to the
surplus of supply. No relief is expected until perhaps 1995. More stringent
compliance requirements in environmental, operations and engineering areas
increased costs.
During the fourth quarter of fiscal 1993 a small feeder plant in Altus,
Oklahoma, was closed. At Ocala, Florida, the municipal recycling operations
were reacquired by the former owners, thus ending our participation in this
activity. Our metal processing capability was increased at Lubbock, Texas,
with the addition of a ferrous shear.
MARKETING AND TRADING
Revenues and operating profits in 1993 were significantly higher than last year
due to the increased new steel trading activity in the Pacific Rim. Revenues
increased 65% and operating profits were up nearly 80%. Our International
Division achieved a record in new steel tonnage shipped during the year, a
major portion of which went to China.
Cometals, Inc., headquartered in New York, opened a second
representative office in Beijing during the second quarter of fiscal 1993. Cost
reduction initiatives resulted in a decision at year-end to close the trading
office in Brussels. Customers of the Brussels office will now be served through
the office in Zug with the goal of improved relationships and customer service.
The International Division opened a trading office in Berkshire,
England, during the third quarter that will concentrate on new steel products
distribution.
16
1993 COMPARED TO 1992 (CONTINUED):
FINANCIAL SERVICES
Revenues for fiscal 1993 were slightly lower than last year, but operating
income was about even with last year. However, net interest income was
slightly higher compared to last year due to lower interest expense. CMC
Finanz recorded more letter of credit commissions from increased trade
financing from CMC Marketing Divisions but this was partially offset by
significantly lower fees from portfolio and asset management.
OTHER
During 1993 the Company resolved several significant tax issues with the
Internal Revenue Service. The settlement resulted in net interest income of
$1.3 million accrued in other revenues, and a refund of $1 million credited to
the tax liability account.
LIQUIDITY AND CAPITAL RESOURCES
The increased cash flow from operations (before changes in operating assets and
liabilities) for fiscal 1994 resulted from higher net earnings, particularly in
the Manufacturing and Recycling segments and higher depreciation and
amortization.
Cash flows from operating activities in fiscal 1994 were generated by
decreases in financial services loans and advances and inventories and by
increases in accounts payable, accrued expenses and income taxes payable. Cash
flows were used for increases in accounts receivable and other assets. The
increase in accounts receivable was primarily due to the higher level of
business activity in the Manufacturing and Recycling segments. The increase in
other assets was due primarily to an increase in current deferred income tax
assets.
Cash used in 1994 by investing activities consisted of $48 million
invested in property, plant and equipment including the new melt shop in the
Birmingham minimill. Cash was generated by reductions of $9.5 million in
temporary investments and from the proceeds of sales of property, plant and
equipment.
Cash provided in 1994 by financing activities was generated by
borrowings from commercial paper and notes payable and from stock issued under
option plans. Cash was used in the acquisition of 748,100 shares of treasury
stock, payments on long-term debt and for the payment of cash dividends.
Net working capital was $175 million at the end of fiscal 1994 compared
to $183 million last year. The current ratio was 1.6 compared to 1.9 last year.
The Company's sources of short-term funds include a commercial paper
program of $30 million. The Company's commercial paper is rated in the second
highest category by both Standard & Poor's Corporation (A-2) and Fitch Investors
Service, Inc. (F-2). Formal bank credit lines are maintained equal to 100% of
the amount of all commercial paper outstanding.
The Company has a two year, $30 million unsecured revolving credit and
term loan facility with a group of five banks. The final maturity date of this
credit facility can be extended annually for successive additional one-year
periods by mutual agreement.
The Company has numerous informal credit facilities available from
domestic and international banks. These credit facilities are priced at
banker's acceptance rates or on a cost of funds basis.
Management believes it has adequate capital resources available from
internally generated funds, treasury shares and from short-term and long-term
capital markets to meet anticipated working capital needs, planned capital
expenditures, dividend payments to shareholders and to take advantage of new
opportunities requiring capital.
Capital investments in property, plant and equipment were $48 million in
1994 compared to $38 million the prior year. Capital spending for fiscal 1995
is projected at $38 million of which $25 million will be invested in steel
manufacturing, $2 million in copper tubing, $9 million in recycling and $2
million in other operations. The projections do not include the Owen Steel
acquisition. These expenditures are expected to be funded from internally
generated funds and from cash and temporary investments. The Owen Steel
acquisition will be funded by treasury shares and utilization of existing
credit facilities. Depreciation expense increased to $30 million from $27
million last year. Capital expenditures have exceeded depreciation expense in
each of the past five years except for 1992 when expenditures and depreciation
expense were about even.
17
Total capitalization was $334 million at the end of fiscal 1994. The
ratio of long-term debt to capitalization decreased to 22% from 24% last year
as a result of payments of $5 million on long-term debt during the year.
Stockholders' equity was $243 million or $17.01 per share. During the past five
years stockholders' equity increased $52 million or 27%. Equity per share
increased 34%. There were 14.3 million shares outstanding on August 31, 1994.
The Board of Directors has authorized the repurchase of the Company's common
stock and during fiscal 1994, 748,100 shares were repurchased. On August 31,
1994, 1.9 million treasury shares were held by the Company.
CONTINGENCIES
In the ordinary course of conducting its business, the Company becomes involved
in litigation, administrative proceedings and governmental investigations,
including environmental matters.
The Company's origin and one of its core businesses for over three
quarters of a century has been metals recycling. In the present era of
conservation of natural resources and ecological concerns, the Company has a
continuing commitment to sound ecological and business conduct. Certain
governmental regulations regarding environmental concerns, however well
intentioned, are presently at odds with goals of greater recycling and expose
the Company and the industry to potentially significant risks. Such exposures
are causing the industry to shrink, leaving fewer but more well financed
operators as survivors to face the challenge.
The Company believes that materials that are recycled are commodities
that are neither discarded nor disposed. They are diverted by recyclers from
the solid waste streams because of their inherent value. Commodities are
materials that are purchased and sold in public and private markets and
commodities exchanges every day around the world. They are identified,
purchased, sorted, processed and sold in accordance with carefully established
industry specifications.
Environmental agencies at various federal and state levels would
classify certain recycled materials as hazardous substances and subject
recyclers to material remediation costs, fines and penalties. Taken to
extremes, such actions could cripple the recycling industry and undermine any
national goal of material conservation. Enforcement, interpretation, and
litigation involving these regulations are not well developed.
The Company has received notices from the U.S. Environmental Protection
Agency (EPA) or equivalent state agency that it is considered a potentially
responsible party (PRP) at nine sites, none owned by the Company, and may be
obligated under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (CERCLA) or similar state statute to conduct remedial
investigation, feasibility studies, remediation and/or removal of alleged
releases of hazardous substances or to reimburse the EPA for such activities.
The Company is involved in litigation or administrative proceedings with regard
to several of these sites in which the Company is contesting, or at the
appropriate time may contest, its PRP designation. In addition, the Company has
received information requests with regard to other sites which may be under
consideration by the EPA as potential CERCLA sites.
Some of these environmental matters or other proceedings may result in
fines, penalties or judgments being assessed against the Company which, from
time to time, may have a material impact on earnings and cash flows for a
particular quarter. 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. It is the opinion of
the Company's management that the outcome of these proceedings, individually or
in the aggregate, will not have a material adverse effect on the business or
consolidated financial position of the Company.
In fiscal 1994, the Company incurred environmental costs of $1,451,000,
all of which were expensed. The nature and timing of these incremental
environmental costs is such that it is not practical for the Company to
estimate their magnitude in future periods. It is known that forms of storm
water runoff permits will be required which will impact future periods.
In November 1993 the Federal Energy Regulatory Commission entered an
order finding a subsidiary of the Company liable for issues originally arising
from a 1986 order of the Department of Energy. The order finds the subsidiary,
CMC Oil Company, liable for alleged overcharges constituting violations of
crude oil reseller regulations. The alleged overcharges total $1,330,000 plus
interest through August 31, 1994 of $5,600,000. Both the subsidiary and the
government have filed motions for summary judgment. Management cannot
reasonably estimate a financial exposure for this issue but believes that the
eventual outcome will not have a material effect on the consolidated financial
position of the Company.
DIVIDENDS
Quarterly cash dividends have been paid in each of the past 30 consecutive
years. The annual dividend in 1994 was 46 cents a share paid at the rate of 10
cents in the first quarter and 12 cents in each of the second, third and fourth
quarters.
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
19
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except share data)
Year ended August 31,
- - --------------------------------------------------------------------------------------------------------------
1994 1993 1992
-----------------------------------------------------
Revenues:
Net sales $ 1,657,810 $ 1,558,349 $ 1,156,203
Other, primarily interest income 8,424 10,157 9,589
- - --------------------------------------------------------------------------------------------------------------
1,666,234 1,568,506 1,165,792
Costs and expenses:
Cost of goods sold 1,504,566 1,424,707 1,043,428
Selling, general and administrative expenses 103,547 92,679 87,083
Interest expense 9,271 9,397 9,951
Employees' pension and profit sharing plans 7,943 6,662 5,033
- - --------------------------------------------------------------------------------------------------------------
1,625,327 1,533,445 1,145,495
- - --------------------------------------------------------------------------------------------------------------
Earnings before income taxes 40,907 35,061 20,297
Income taxes 14,737 13,400 7,787
- - --------------------------------------------------------------------------------------------------------------
Net earnings $ 26,170 $ 21,661 $ 12,510
==============================================================================================================
Net earnings per share $1.75 $ 1.46 $ .87
==============================================================================================================
See notes to consolidated financial statements.
20
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
August 31,
- - --------------------------------------------------------------------------------------------------------------
1994 1993
---------------------------------
ASSETS
Current assets:
Cash and temporary investments $ 38,269 $ 47,439
Accounts receivable (less allowance for collection losses of
$3,528 and $3,217) 228,035 163,387
Financial services loans and advances 19,560 35,768
Inventories 133,748 136,601
Other 26,473 15,300
- - --------------------------------------------------------------------------------------------------------------
Total current assets 446,085 398,495
Other assets 1,984 4,143
Property, plant and equipment:
Land 10,747 10,165
Buildings 32,367 30,695
Equipment 304,977 257,537
Leasehold improvements 15,585 13,252
Construction in process 6,880 15,517
- - --------------------------------------------------------------------------------------------------------------
370,556 327,166
Less accumulated depreciation and amortization (213,748) (187,843)
- - --------------------------------------------------------------------------------------------------------------
156,808 139,323
---------------------------------
$ 604,877 $ 541,961
==============================================================================================================
21
August 31,
- - --------------------------------------------------------------------------------------------------------------
1994 1993
-------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Commercial paper $ 20,000 $ --
Notes payable 21,000 --
Financial services notes payable 50,912 41,003
Accounts payable 84,644 100,587
Other payables and accrued expenses 85,220 64,507
Income taxes payable 4,338 4,109
Current maturities of long-term debt 4,852 4,824
- - --------------------------------------------------------------------------------------------------------------
Total current liabilities 270,966 215,030
Deferred income taxes 19,077 14,773
Long-term debt 72,061 76,737
Commitments and contingencies
Stockholders' equity:
Capital stock:
Preferred stock
Common stock, par value $5.00 per share: authorized 20,000,000 shares;
issued 16,132,583 shares; outstanding 14,275,007 and 11,060,613
(pre-split) shares 80,663 60,500
Additional paid-in capital 1,019 3,919
Retained earnings 192,997 189,865
- - --------------------------------------------------------------------------------------------------------------
274,679 254,284
Less treasury stock 1,857,576 and 1,039,451 (pre-split) shares at cost (31,906) (18,863)
- - --------------------------------------------------------------------------------------------------------------
242,773 235,421
-------------------------------
$ 604,877 $ 541,961
==============================================================================================================
See notes to consolidated financial statements.
22
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
August 31,
- - --------------------------------------------------------------------------------------------------------------
1994 1993 1992
--------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 26,170 $ 21,661 $ 12,510
Adjustments to earnings not requiring cash:
Depreciation and amortization 30,143 27,361 25,628
Provision for losses on receivables 1,258 1,998 1,988
Deferred income taxes 4,304 2,281 (302)
Other (209) 331 (106)
- - --------------------------------------------------------------------------------------------------------------
Cash flows from operations before changes in
operating assets and liabilities 61,666 53,632 39,718
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (65,906) (1,259) (33,648)
Decrease (increase) in financial services loans and advances 16,208 9,400 (209)
Decrease (increase) in inventories 2,853 (30,388) (12,291)
Decrease (increase) in other assets (9,014) 2,672 1,358
Increase (decrease) in accounts payable,
accrued expenses, and income taxes 4,998 24,431 9,978
- - --------------------------------------------------------------------------------------------------------------
Net Cash Flows From Operating Activities 10,805 58,488 4,906
CASH FLOWS FROM INVESTING ACTIVITIES:
Temporary investments 9,485 7,307 (14,413)
Purchases of property, plant and equipment (48,152) (37,613) (24,503)
Sales of property, plant and equipment 733 1,288 906
- - --------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (37,934) (29,018) (38,010)
CASH FLOWS FROM FINANCING ACTIVITIES:
Commercial paper-net change 20,000 -- (20,000)
Notes payable - net change 21,000 -- --
Financial services notes payable 9,909 (10,895) 16,125
New long-term debt -- -- 50,000
Payments on long-term debt (4,648) (7,000) (8,812)
Prepayments on long-term debt -- (5,911) (656)
Stock issued under stock option, purchase, and bonus plans 4,347 5,630 2,541
Tax benefits related to stock option plan 661 1,661 107
Treasury stock acquired (17,120) -- (888)
Dividends paid (6,705) (5,635) (5,515)
- - --------------------------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing Activities 27,444 (22,150) 32,902
Increase (Decrease) in Cash and Cash Equivalents 315 7,320 (202)
Cash and Cash Equivalents at Beginning of Year 18,780 11,460 11,662
- - --------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 19,095 $ 18,780 $ 11,460
==============================================================================================================
See notes to consolidated financial statements.
23
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
Common stock Treasury stock
-------------------- Additional -----------------------
Number of paid-in Retained Number of
shares Amount capital earnings shares Amount
- - ------------------------------------------------------------------------------------------------------------------------
Balance, September 1, 1991 12,100,064 $ 60,500 $ 2,515 $ 166,844 (1,522,445) $ (26,296)
Net earnings 12,510
Cash dividends - $.39 per share (5,515)
Treasury stock acquired (49,700) (888)
Stock issued under stock option, purchase
and bonus plans (62) 138,087 2,389
Tax benefits related to stock option plan 107
- - ------------------------------------------------------------------------------------------------------------------------
Balance, August 31, 1992 12,100,064 60,500 2,560 173,839 (1,434,058) (24,795)
Net earnings 21,661
Cash dividends - $.39 per share (5,635)
Treasury stock acquired -- --
Stock issued under stock option, purchase
and bonus plans (302) 394,607 5,932
Tax benefits related to stock option plan 1,661
- - ------------------------------------------------------------------------------------------------------------------------
Balance, August 31, 1993 12,100,064 60,500 3,919 189,865 (1,039,451) (18,863)
Net earnings 26,170
Cash dividends - $.46 per share (6,705)
Stock split, four-for-three 4,032,519 20,163 (3,830) (16,333) (346,318) --
Treasury stock acquired (748,100) (17,120)
Stock issued under stock option, purchase
and bonus plans 269 276,293 4,077
Tax benefits related to stock option plan 661
- - ------------------------------------------------------------------------------------------------------------------------
Balance, August 31, 1994 16,132,583 $ 80,663 $ 1,019 $ 192,997 (1,857,576) $ (31,906)
========================================================================================================================
See notes to consolidated financial statements.
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All material intercompany transactions and balances are
eliminated in consolidation.
REVENUE RECOGNITION
Sales are recognized when title to inventory passes to the customer based on
customary shipping terms.
LOANS AND ADVANCES
Loans and advances of the Financial Services segment are stated at the amount
of unpaid principal reduced by unearned discount and an allowance for losses
where applicable. Interest is calculated using the simple interest method on
the principal outstanding at the beginning of the interest period.
INVENTORIES
Inventories are stated at the lower of cost or market. Inventory cost for
almost all domestic inventories is determined by the last-in, first-out (LIFO)
method; cost of international and other domestic inventories is determined by
the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost and is depreciated at annual
rates based upon the estimated useful lives of the assets using substantially
the straight-line method. Provision for amortization of leasehold improvements
is made at annual rates based upon the estimated useful lives of the assets or
terms of the leases, whichever is shorter.
STARTUP COSTS
Startup costs associated with the acquisition and expansion of manufacturing and
recycling facilities are expensed as incurred.
INCOME TAXES
Deferred income taxes are provided for temporary differences between financial
and tax reporting. The principal differences are described in Note 5. Benefits
from tax credits are reflected currently in earnings.
FOREIGN CURRENCY
The functional and the reporting currency of a majority of the Company's
international subsidiaries is the United States dollar. There are no significant
translation adjustments to be reported as a separate component of stockholders'
equity.
Gain or loss on foreign currency exchange contracts designated as hedges is
deferred and recognized upon settlement of the related trade receivable or
payable.
CASH FLOWS
For purposes of the statements of cash flows, the Company considers investments
that are short-term (generally with original maturities of three months or
less) and highly liquid to be cash equivalents. Temporary investments include
highly liquid instruments with longer original maturity dates.
Cash and cash equivalents and temporary investments at August 31 were as
follows (in thousands):
1994 1993 1992
- - ----------------------------------------------------------------------
Cash and cash equivalents $ 19,095 $ 18,780 $ 11,460
Temporary investments
(at lower of cost or market) 19,174 28,659 35,966
- - ----------------------------------------------------------------------
$ 38,269 $ 47,439 $ 47,426
======================================================================
RECLASSIFICATIONS
Certain reclassifications have been made in the 1993 and 1992 financial
statements to conform to the classifications used in the current year.
OTHER
SFAS No. 112 "Employers Accounting for Postemployment Benefits" will be adopted
in 1995. The Company's historical costs for these items have not been
significant.
2. INVENTORIES
Before reduction of LIFO reserves of $21,298,000 and $11,746,000 at August 31,
1994 and 1993, respectively, inventories valued under the first-in, first-out
method approximated replacement cost.
Reduced charges to cost of goods sold as a result of reductions of
inventory quantities did not increase net earnings in 1994 or 1993 but were
approximately $619,000 in 1992.
At August 31, 1994 and 1993, 78% and 65%, respectively, of total
inventories were valued at LIFO. The remainder of inventories, valued at FIFO,
consist mainly of international back-to-back sales, in-transit to customers.
3. CREDIT ARRANGEMENTS
Periodically, the Company is active in the commercial paper market with a
commercial paper program which permits borrowings up to $30,000,000. It is the
Company's policy to maintain formal bank credit lines equal to 100% of the
amount of all commercial paper outstanding.
The Company has numerous informal credit facilities available from domestic
and international banks. These credit facilities are priced at banker's
acceptance rates or on a cost of funds basis. No compensating balances or
commitment fees are required under these credit facilities.
On November 23, 1993, the Company arranged a 2 year, $30 million unsecured
revolving credit loan facility with a group of five banks. The final maturity
date of this credit facility can be extended annually for successive additional
one year periods by mutual agreement. The agreement provides for borrowing in
United States dollars indexed to the prime rate, to the United States
certificate of deposit rate, or to the offshore dollar interbank market rate. A
commitment fee of .225% per annum is payable on the unused credit line. No
compensating balances are required.
25
Long-term debt and amounts due within one year as of August 31, 1994, are
as follows (in thousands):
Amount Current Long-term
outstanding maturities debt
- - ----------------------------------------------------------------------
8.49% notes due 2001 $ 50,000 $ -- $ 50,000
8.75% note due 1999 23,571 4,286 19,285
8.15% note due 1996 2,917 417 2,500
Other 425 149 276
- - ----------------------------------------------------------------------
$ 76,913 $ 4,852 $ 72,061
======================================================================
All interest is payable semiannually. The 8.49% notes provide for annual
principal repayments beginning on December 1, 1995; all other notes are payable
semiannually; the 8.15% note has a final payment of $2,500,000 on December 1,
1995.
Certain of the note agreements include various covenants. The most
restrictive of these requires maintenance of consolidated net current assets of
$75,000,000 and net worth (as defined) of $150,000,000. At August 31, 1994,
approximately $90,000,000 of retained earnings was available for cash dividends
under these covenants.
The aggregate amounts of all long-term debt maturities for the five years
following August 31, 1994, are (in thousands): 1995 - $4,852; 1996 - $14,063;
1997 - $11,490; 1998 - $11,479; 1999 - $11,461.
Interest expense is comprised of the following (in thousands):
Year ended August 31,
- - ----------------------------------------------------------------------
1994 1993 1992
- - ----------------------------------------------------------------------
Long-term debt $ 5,521 $ 7,259 $ 7,185
Financial services debt 1,953 1,799 1,924
Commercial paper 321 178 154
Notes payable 1,476 161 688
- - ----------------------------------------------------------------------
$ 9,271 $ 9,397 $ 9,951
======================================================================
Interest of $1,176,000, $411,000 and $113,000 was capitalized in the cost of
property, plant and equipment constructed in 1994, 1993 and 1992, respectively.
Interest of $10,453,000, $10,524,000 and $8,931,000 was paid in 1994, 1993 and
1992, respectively.
4. FINANCIAL INSTRUMENTS, MARKET AND CREDIT RISK
Management believes that the historical financial statement presentation is the
most useful for displaying the Company's financial position. However, SFAS No.
107 "Disclosure About Fair Value of Financial Instruments" requires disclosure
of an estimate of the fair value of the Company's financial instruments as of
year end. These estimated fair values disregard management intentions
concerning these instruments and do not represent liquidation proceeds or
settlement amounts currently available to the Company. Differences between
historical presentation and estimated fair values can occur for many reasons
including taxes, commissions, prepayment penalties, make-whole provisions and
other restrictions as well as the inherent limitations in any estimation
technique. Because of this management believes that this information may be of
limited usefulness in understanding the Company and minimal value in
comparability between companies.
Due to near-term maturities, allowances for collection losses, investment
grade ratings and security provided, the following financial instruments'
carrying amounts are considered equivalent to fair value:
-- Cash and temporary investments
-- Financial services loans and advances
-- Commercial paper
-- Notes payable
-- Financial services notes payable
The Company's long-term debt is privately placed with unique terms and no
active market. Fair value was determined by discounting future cash flows at
current market yields.
(in thousands)
- - ------------------------------------------------------------
Carrying Estimated
Long-Term Debt Amount Fair Value
- - ------------------------------------------------------------
1994 $ 76,913 $ 80,606
1993 $ 81,561 $ 90,703
============================================================
The notional amount of foreign currency exchange contracts outstanding at year
end was $33,800,000. The fair value of these contracts effective as hedges is
not significant. The Company's finance subsidiary issues letters of credit
predominantly on behalf of other members of the consolidated group. Commission
charges are eliminated in consolidation; the fair value of all outstanding
letters of credit is not meaningful.
The Company does not have significant off-balance-sheet risk from financial
instruments. It enters into foreign exchange contracts as hedges of trade
receivables and payables denominated in currencies other than the functional
currency. Effects of changes in currency rates are therefore minimized. As a
matter of Company policy, foreign exchange contracts are used only to hedge
firm commitments, not anticipated transactions.
The Company maintains both corporate and divisional credit departments.
Limits are set for customers and countries. Letters of credit issued or
confirmed through sound financial institutions are obtained to further ensure
prompt payment in accordance with terms of sale; generally, collateral is not
required. At August 31, 1994, $50,818,000 of accounts receivable were backed by
these bankers acceptances.
In the normal course of its marketing activities, the Company transacts
business with substantially all sectors of the metals industry. Customers are
internationally dispersed, cover the spectrum of manufacturing and distribution,
deal with various types and grades of metal, and have a variety of end markets
in which they sell. The Company's finance subsidiary routinely loans and
advances funds up to specified loan limits. No single loan or advance is
material to the Company's consolidated equity. Due to these factors, no
additional credit risk beyond amounts provided for collection losses is believed
inherent in the Company's accounts receivable and loans and advances.
26
5. INCOME TAXES
The provisions for income taxes include the following
(in thousands):
Year ended August 31,
- - ----------------------------------------------------------------------
1994 1993 1992
-------------------------------
Current:
United States $ 8,165 $ 8,827 $ 5,970
Foreign 402 1,028 165
State and local 1,866 1,264 1,954
- - ----------------------------------------------------------------------
10,433 11,119 8,089
Deferred 4,304 2,281 (302)
- - ----------------------------------------------------------------------
$ 14,737 $ 13,400 $ 7,787
======================================================================
Taxes of $14,736,000, $7,511,000 and $8,576,000 were paid in 1994, 1993 and
1992, respectively.
Deferred taxes arise from temporary differences between the tax basis of an
asset or liability and its reported amount in the financial statements. The
sources and tax effects of these differences are (in thousands):
August 31,
- - ----------------------------------------------------------------------
1994 1993
-------------------
U.S. taxes provided on foreign income
and foreign taxes $ 10,589 $ 9,495
Tax on difference between tax
and book depreciation 9,228 6,655
Other (740) (1,377)
- - ----------------------------------------------------------------------
Total $ 19,077 $ 14,773
======================================================================
As noted above the Company provides United States taxes on unremitted foreign
earnings. Such earnings have been reinvested in the foreign operations except
for dividends of $6,062,000.
The Company's effective tax rates were 36% in 1994, 38.2% in 1993, and
38.4% in 1992. Reconciliations of the United States statutory rates to the
effective rates are as follows:
Year ended August 31,
- - ---------------------------------------------------------------------
1994 1993 1992
---------------------------
Statutory rate 35.0% 35.0% 34.0%
Tax credits (.5) (.5) (.6)
State and local taxes 2.9 2.1 6.1
Other (1.4) 1.6 (1.1)
- - ---------------------------------------------------------------------
Effective tax rate 36.0% 38.2% 38.4%
=====================================================================
During 1993, the Company resolved several significant tax issues with the
Internal Revenue Service. The settlement resulted in net interest income of
$1,318,000 accrued in other revenues and a refund of $1 million credited to the
tax liability account. During the current year, the Company resolved all issues
for its returns for 1985 through 1990. The settlement amount was negligible.
6. CAPITAL STOCK
COMMON STOCK
On November 22, 1993, the Board of Directors declared a four-for-three stock
split in the form of a 33-1/3% stock dividend on the Company's common stock
payable December 27, 1993, to shareholders of record on December 6, 1993. All
applicable share and per share data have been adjusted for the stock split.
STOCK PURCHASE PLAN
Substantially all employees may participate in the Company's employee stock
purchase plan. The Directors have authorized the annual purchase of up to 200
shares at a discount of 25% from the stock's price. Annual activity of the
stock purchase plan was as follows:
1994 1993 1992
- - ----------------------------------------------------------------------
Shares available 567,841
Shares outstanding 112,330
Price per share $19.94
Shares purchased 122,607 133,053 129,066
Price per share $14.06 $13.42 $10.00
STOCK OPTION PLANS
In 1979, the Board of Directors of the Company approved the Key Employees
Restricted Stock Bonus Plan (the Plan), under which shares of common stock were
awarded to certain key employees of the Company. Under the terms of the Plan,
the shares are issued in the name of the employee and placed in escrow for a
five-year vesting period, with the employee receiving all cash dividends and
having the right to vote such shares held in escrow. In October 1989, the
Company awarded 260,337 shares and recorded deferred noncash compensation of
$4,029,000, representing the fair market value of the common stock at the date
of the stock award. The deferred compensation is being amortized over the
five-year vesting period, with $654,000, $488,000 and $697,000 in 1994, 1993
and 1992, respectively, charged to operations. Employees with 1,232, 7,265 and
2,007 nonvested shares forfeited their shares during 1994, 1993 and 1992,
respectively. These shares were returned to the Company. The Plan terminated on
January 30, 1990, except as to awards outstanding.
The 1986 Stock Incentive Plan (Incentive Plan) was approved in November
1986 by the Board of Directors. Under the Incentive Plan, stock options and
stock appreciation rights may be awarded to full-time salaried employees,
including directors, of the Company. The option price for both the stock
options and the stock rights will not be less than the fair market value of the
Company's stock at the date of grant and are exercisable two to three years
from date of grant. The Incentive Plan also provides for issuance of common
stock to eligible employees as performance awards for achievement of specified
objectives.
Annual activity of the stock incentive plan is as follows:
1994 1993 1992
------------------------------------
Shares available 193,854
Shares outstanding 1,273,065
Price per share $8.72 - 27.61
Shares exercisable 635,329
Shares granted 287,369 372,595 355,480
Price per share $27.61 $20.21 $18.42
Shares exercised 160,497 494,365 58,520
Average price per share $13.72 $12.47 $11.28
Shares forfeited 12,319 24,812 5,600
27
PREFERRED STOCK
Preferred stock has a par value of $1.00 a share, with 2,000,000 shares
authorized. It may be issued in series, and the shares of each series shall
have such rights and preferences as shall be fixed by the Board of Directors
when authorizing the issuance of that particular series. There are no shares of
preferred stock outstanding.
7. EMPLOYEES' PENSION AND PROFIT SHARING PLANS
Substantially all employees of the Company and its subsidiaries are covered by
profit sharing or savings plans. Effective May 1, 1994, the Company's two
profit sharing plans were amended to add 401(k) deferred compensation options.
Contributions, which are discretionary, to all plans were $6,999,000,
$6,097,000 and $4,946,000 for 1994, 1993 and 1992, respectively. One subsidiary
maintains a defined benefit pension plan that covers substantially all its
employees. Benefits are based on an employee's average monthly earnings and
years of service. At August 31, 1994, the plan was fully funded under Internal
Revenue Code regulations and no contributions were required nor allowed.
Financial statement pension expense (income) and related balance sheet and
funded status are not significant.
8. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company has no significant postretirement obligations other than pensions
(see note 7).
9. COMMITMENTS AND CONTINGENCIES
Minimum rental commitments payable by the Company and its consolidated
subsidiaries for noncancelable operating leases in effect at August 31, 1994,
are as follows for the fiscal periods specified (in thousands):
Real
Equipment Estate
- - -----------------------------------------------------------
1995 $ 1,831 $ 2,518
1996 746 2,077
1997 511 1,891
1998 95 1,731
1999 and thereafter 20 4,972
- - -----------------------------------------------------------
$ 3,203 $ 13,189
===========================================================
Total rental expense was $6,086,000, $5,994,000 and $5,692,000 in 1994, 1993
and 1992, respectively.
In the ordinary course of conducting its business, the Company becomes
involved in litigation, administrative proceedings and governmental
investigations, including environmental matters.
The Company has received notices from the U.S. Environmental Protection
Agency (EPA) or equivalent state agency that it is considered a potentially
responsible party (PRP) at nine sites, none owned by the Company, and may be
obligated under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (CERCLA) or similar state statute to conduct remedial
investigations, feasibility studies, remediation and/or removal of alleged
releases of hazardous substances or to reimburse the EPA for such activities.
The Company is involved in litigation or administrative proceedings with regard
to several of these sites in which the Company is contesting, or at the
appropriate time may contest, its PRP designation. In addition, the Company has
received information requests with regard to other sites which may be under
consideration by the EPA as potential CERCLA sites.
Some of these environmental matters or other proceedings may result in
fines, penalties or judgments being assessed against the Company which, from
time to time, may have a material impact on earnings for a particular quarter.
While the Company is unable to estimate precisely the ultimate dollar amount of
exposure to loss in connection with the above-referenced matters, it makes
accruals as warranted. It is the opinion of the Company's management that the
outcome of these proceedings, individually or in the aggregate, will not have a
material adverse effect on the business or consolidated financial position of
the Company.
In November 1993 the Federal Energy Regulatory Commission entered an order
finding a subsidiary of the Company liable for issues originally arising from a
1986 order of the Department of Energy. The order finds the subsidiary, CMC Oil
Company, liable for alleged overcharges constituting violations of crude oil
reseller regulations. The alleged overcharges total $1,330,000 plus interest
through August 31, 1994 of $5,600,000. Both the subsidiary and the government
have filed motions for summary judgment. Management cannot reasonably estimate
a financial exposure for this issue but believes that the eventual outcome will
not have a material effect on the consolidated financial position of the
Company.
10. EARNINGS PER SHARE
Earnings per share are computed on the basis of the weighted average number of
shares of common stock and common stock equivalents outstanding during the
year. Common stock equivalents resulting from the stock option and purchase
plans do not cause a significant dilutive effect. The shares used in the
calculation of earnings per share were 14,956,479, 14,820,832 and 14,437,403 in
1994, 1993 and 1992, respectively.
11. OTHER PAYABLES AND ACCRUED EXPENSES
(in thousands) August 31,
- - ----------------------------------------------------------------------
1994 1993
-------------------
Salaries, wages and commissions $ 18,882 $ 14,876
Pension and profit sharing 7,988 6,215
Environmental 3,955 4,581
Taxes other than income taxes 3,430 3,237
Interest 2,733 3,531
Insurance 6,843 5,426
Freight 4,849 1,725
Other accrued expenses 36,540 24,916
- - ----------------------------------------------------------------------
$ 85,220 $ 64,507
======================================================================
12. INVESTMENT IN SUBSIDIARY
CMC Finanz AG is a wholly-owned foreign finance subsidiary. In response to
requests from investors, security analysts, rating agencies and others, the
following disaggregated information is presented. In accordance with SFAS No.
94, information regarding CMC Finanz AG, a formerly unconsolidated subsidiary,
is included below, accompanied by additional information considered useful in
understanding the various business activities. Certain reclassifications and
elimination of intercompany items are not shown.
Commercial Metals Company - This column includes the accounts of the
Company and all subsidiaries. All material intercompany transactions and
balances have been eliminated in consolidation.
CMC - This column includes the accounts of the Company and all its
subsidiaries except CMC Finanz AG, which is carried on the equity method. Such
presentation is not intended to represent financial information in accordance
with generally accepted accounting principles.
CMC Finanz AG - This column of financial information includes only the
accounts of CMC Finanz AG.
28
12. INVESTMENT IN SUBSIDIARY (CONTINUED):
STATEMENTS OF EARNINGS
(in thousands)
Year ended August 31, 1994
- - ----------------------------------------------------------------------------------
Commercial
Metals CMC
Company CMC Finanz AG
--------------------------------------------
Revenues:
Net sales $ 1,657,810 $ 1,657,810 $
Other, primarily
interest income 8,424 4,565 3,859
Earnings of CMC Finanz AG 1,431
- - ----------------------------------------------------------------------------------
1,666,234 1,663,806 3,859
Costs and expenses:
Cost of goods sold 1,504,566 1,504,566
Selling, general and
administrative expenses 103,547 102,864 683
Interest expense 9,271 7,318 1,953
Employees' pension
and profit sharing plans 7,943 7,923 20
- - ----------------------------------------------------------------------------------
1,625,327 1,622,671 2,656
Earnings before income taxes 40,907 41,135 1,203
Income taxes 14,737 14,965 (228)
- - ----------------------------------------------------------------------------------
Net earnings $ 26,170 $ 26,170 $ 1,431
==================================================================================
STATEMENTS OF EARNINGS
(in thousands)
Year ended August 31, 1993
- - ----------------------------------------------------------------------------------
Commercial
Metals CMC
Company CMC Finanz AG
--------------------------------------------
Revenues:
Net sales $ 1,558,349 $ 1,558,349 $
Other, primarily
interest income 10,157 6,206 3,951
Earnings of CMC Finanz AG 894
- - ----------------------------------------------------------------------------------
1,568,506 1,565,449 3,951
Costs and expenses:
Cost of goods sold 1,424,707 1,424,707
Selling, general and
administrative expenses 92,679 91,783 896
Interest expense 9,397 7,598 1,799
Employees' pension
and profit sharing plans 6,662 6,633 29
- - ----------------------------------------------------------------------------------
1,533,445 1,530,721 2,724
Earnings before income taxes 35,061 34,728 1,227
Income taxes 13,400 13,067 333
- - ----------------------------------------------------------------------------------
Net earnings $ 21,661 $ 21,661 $ 894
==================================================================================
STATEMENTS OF EARNINGS
(in thousands)
Year ended August 31, 1992
- - ----------------------------------------------------------------------------------
Commercial
Metals CMC
Company CMC Finanz AG
--------------------------------------------
Revenues:
Net sales $ 1,156,203 $ 1,156,203 $
Other, primarily
interest income 9,589 5,800 3,789
Earnings of CMC Finanz AG 1,117
- - ----------------------------------------------------------------------------------
1,165,792 1,163,120 3,789
Costs and expenses:
Cost of goods sold 1,043,428 1,043,428
Selling, general and
administrative expenses 87,083 86,195 888
Interest expense 9,951 8,027 1,924
Employees' pension
and profit sharing plans 5,033 5,000 33
- - ----------------------------------------------------------------------------------
1,145,495 1,142,650 2,845
Earnings before income taxes 20,297 20,470 944
Income taxes 7,787 7,960 (173)
- - ----------------------------------------------------------------------------------
Net earnings $ 12,510 $ 12,510 $ 1,117
==================================================================================
29
BALANCE SHEETS AS OF AUGUST 31, 1994
(in thousands)
- - ----------------------------------------------------------------------------------
Commercial
Metals CMC
Company CMC Finanz AG
-----------------------------------------
ASSETS
Current assets:
Cash and temporary
investments $ 38,269 $ 38,064 $ 205
Accounts receivable 228,035 205,111 22,924
Accounts receivable - affiliate 32,159
Financial services loans
and advances 19,560 19,560
Inventories 133,748 133,748
Other 26,473 26,209 264
-------------------------
Total current assets 446,085 403,132
Investment in unconsolidated
subsidiary 23,535
Other assets 1,984 1,984
Property, plant and equipment:
Land 10,747 10,747
Buildings 32,367 32,367
Equipment 304,977 304,977
Leasehold improvements 15,585 15,585
Construction in process 6,880 6,880
-------------------------
370,556 370,556
Less accumulated depreciation
and amortization (213,748) (213,748)
-------------------------
156,808 156,808
- - ----------------------------------------------------------------------------------
$ 604,877 $ 585,459 $ 75,112
==================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Commercial paper $ 20,000 $ 20,000 $ --
Notes payable 21,000 21,000
Financial services notes payable 50,912 50,912
Accounts payable 84,644 84,608 36
Accounts payable - affiliate 32,159
Other payables and accrued
expenses 85,220 84,832 388
Income taxes payable 4,338 4,134 204
Current maturities
of long-term debt 4,852 4,852
-------------------------
Total current liabilities 270,966 251,585
Deferred income taxes 19,077 19,040 37
Long-term debt 72,061 72,061
Stockholders' equity:
Capital stock:
Preferred stock
Common stock 80,663 80,663 13,298
Additional paid-in capital 1,019 1,019
Retained earnings 192,997 192,997 10,237
----------------------------------------
274,679 274,679 23,535
Less treasury stock (31,906) (31,906)
----------------------------------------
242,773 242,773 23,535
- - ----------------------------------------------------------------------------------
$ 604,877 $ 585,459 $ 75,112
==================================================================================
BALANCE SHEETS AS OF AUGUST 31, 1993
(in thousands)
- - ----------------------------------------------------------------------------------
Commercial
Metals CMC
Company CMC Finanz AG
-----------------------------------------
ASSETS
Current assets:
Cash and temporary
investments $ 47,439 $ 47,039 $ 400
Accounts receivable 163,387 155,129 8,258
Accounts receivable - affiliate 18,308
Financial services loans
and advances 35,768 35,768
Inventories 136,601 136,601
Other 15,300 15,179 121
-------------------------
Total current assets 398,495 353,948
Investment in unconsolidated
subsidiary 22,104
Other assets 4,143 3,243 900
Property, plant and equipment:
Land 10,165 10,165
Buildings 30,695 30,695
Equipment 257,537 257,537
Leasehold improvements 13,252 13,252
Construction in process 15,517 15,517
-------------------------
327,166 327,166
Less accumulated depreciation
and amortization (187,843) (187,843)
-------------------------
139,323 139,323
- - ----------------------------------------------------------------------------------
$ 541,961 $ 518,618 $ 63,755
==================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Commercial paper $ -- $ -- $ --
Notes payable
Financial services notes payable 41,003 41,003
Accounts payable 100,587 100,587
Accounts payable - affiliate 18,308
Other payables and accrued
expenses 64,507 64,009 498
Income taxes payable 4,109 4,109
Current maturities
of long-term debt 4,824 4,824
-------------------------
Total current liabilities 215,030 191,837
Deferred income taxes 14,773 14,623 150
Long-term debt 76,737 76,737
Stockholders' equity:
Capital stock:
Preferred stock
Common stock 60,500 60,500 13,298
Additional paid-in capital 3,919 3,919
Retained earnings 189,865 189,865 8,806
----------------------------------------
254,284 254,284 22,104
Less treasury stock (18,863) (18,863)
----------------------------------------
235,421 235,421 22,104
- - ----------------------------------------------------------------------------------
$ 541,961 $ 518,618 $ 63,755
==================================================================================
30
12. INVESTMENT IN SUBSIDIARY (CONTINUED):
STATEMENTS OF CASH FLOWS
(in thousands)
Year ended August 31, 1994
- - ----------------------------------------------------------------------------------
Commercial
Metals CMC
Company CMC Finanz AG
-----------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 26,170 $ 26,170 $ 1,431
Adjustments to earnings not
requiring cash:
Depreciation and amortization 30,143 30,143
Equity in earnings of affiliates (1,431)
Provision for losses on receivables 1,258 1,258
Deferred income taxes 4,304 4,417 (113)
Other (209) (329) 120
- - ----------------------------------------------------------------------------------
Cash flows from operations before changes
in operating assets and liabilities 61,666 60,228 1,438
Changes in operating assets and liabilities:
Decrease (increase) in receivables (65,906) (51,240) (14,666)
Decrease (increase) in accounts
receivable-affiliates 13,851 (13,851)
Decrease (increase) in financial
services loans and advances 16,208 120 16,088
Decrease (increase) in inventories 2,853 2,853
Decrease (increase) in other assets (9,014) (9,771) 757
Increase (decrease) in accounts payable,
accrued expenses and income taxes 4,998 4,868 130
- - ----------------------------------------------------------------------------------
Net cash flows from operating activities 10,805 20,909 (10,104)
CASH FLOWS FROM INVESTING ACTIVITIES:
Temporary investments 9,485 9,485
Purchases of property,
plant and equipment (48,152) (48,152)
Sales of property,
plant and equipment 733 733
- - ----------------------------------------------------------------------------------
Net cash used by investing activities (37,934) (37,934)
CASH FLOWS FROM FINANCING ACTIVITIES:
Commercial paper-net change 20,000 20,000
Notes payable - net change 21,000 21,000
Financial services notes payable 9,909 9,909
New long-term debt
Payments on long-term debt (4,648) (4,648)
Prepayments on long-term debt
Stock issued under stock option,
purchase and bonus plan 4,347 4,347
Tax benefits related to
purchase and bonus plans 661 661
Treasury stock acquired (17,120) (17,120)
Dividends paid (6,705) (6,705)
- - ----------------------------------------------------------------------------------
Net cash provided by financing activities 27,444 17,535 9,909
- - ----------------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents 315 510 (195)
Cash and cash equivalents
at beginning of year 18,780 18,380 400
- - ----------------------------------------------------------------------------------
Cash and cash equivalents
at end of year $ 19,095 $ 18,890 $ 205
==================================================================================
STATEMENTS OF CASH FLOWS
(in thousands)
Year ended August 31, 1993
- - ----------------------------------------------------------------------------------
Commercial
Metals CMC
Company CMC Finanz AG
-----------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 21,661 $ 21,661 $ 894
Adjustments to earnings not
requiring cash:
Depreciation and amortization 27,361 27,361
Equity in earnings of affiliates (894)
Provision for losses on receivables 1,998 1,998
Deferred income taxes 2,281 2,131 150
Other 331 211 120
- - ----------------------------------------------------------------------------------
Cash flows from operations before changes
in operating assets and liabilities 53,632 52,468 1,164
Changes in operating assets and liabilities:
Decrease (increase) in receivables (1,259) (5,524) 4,265
Decrease (increase) in accounts
receivable-affiliates 6,511 (6,511)
Decrease (increase) in financial
services loans and advances 9,400 61 9,339
Decrease (increase) in inventories (30,388) (30,388)
Decrease (increase) in other assets 2,672 2,336 336
Increase (decrease) in accounts payable,
accrued expenses and income taxes 24,431 24,368 63
- - ----------------------------------------------------------------------------------
Net cash flows from operating activities 58,488 49,832 8,656
CASH FLOWS FROM INVESTING ACTIVITIES:
Temporary investments 7,307 7,307
Purchases of property,
plant and equipment (37,613) (37,613)
Sales of property,
plant and equipment 1,288 1,288
- - ----------------------------------------------------------------------------------
Net cash used by investing activities (29,018) (29,018)
CASH FLOWS FROM FINANCING ACTIVITIES:
Commercial paper-net change
Notes payable - net change
Financial services notes payable (10,895) (10,895)
New long-term debt
Payments on long-term debt (7,000) (5,267) (1,733)
Prepayments on long-term debt (5,911) (5,911)
Stock issued under stock option,
purchase and bonus plan 5,630 5,630
Tax benefits related to
purchase and bonus plans 1,661 1,661
Treasury stock acquired
Dividends paid (5,635) (5,635)
- - ----------------------------------------------------------------------------------
Net cash provided by financing activities (22,150) (9,522) (12,628)
- - ----------------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents 7,320 11,292 (3,972)
Cash and cash equivalents
at beginning of year 11,460 7,088 4,372
- - ----------------------------------------------------------------------------------
Cash and cash equivalents
at end of year $ 18,780 $ 18,380 $ 400
==================================================================================
31
STATEMENTS OF CASH FLOWS
(in thousands)
Year ended August 31, 1992
- - ----------------------------------------------------------------------------------
Commercial
Metals CMC
Company CMC Finanz AG
-----------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 12,510 $ 12,510 $ 1,117
Adjustments to earnings not
requiring cash:
Depreciation and amortization 25,628 25,628
Equity in earnings of affiliates (1,117)
Less dividend - affiliates 1,362
Provision for losses on receivables 1,988 1,988
Deferred income taxes (302) (302)
Other (106) (226) 120
- - ----------------------------------------------------------------------------------
Cash flows from operations before changes
in operating assets and liabilities 39,718 39,843 1,237
Changes in operating assets and liabilities:
Decrease (increase) in receivables (33,648) (34,530) 1,002
Decrease (increase) in accounts
receivable - affiliates 11,798 (11,798)
Decrease (increase) in financial
services loans and advances (209) (329)
Decrease (increase) in inventories (12,291) (12,291)
Decrease (increase) in other assets 1,358 (60) 1,418
Increase (decrease) in accounts payable,
accrued expenses and income taxes 9,978 10,841 (863)
- - ----------------------------------------------------------------------------------
Net cash flows from operating activities 4,906 15,601 (9,333)
CASH FLOWS FROM INVESTING ACTIVITIES:
Temporary investments (14,413) (14,413)
Purchases of property,
plant and equipment (24,503) (24,503)
Sales of property,
plant and equipment 906 906
- - ----------------------------------------------------------------------------------
Net cash used by investing activities (38,010) (38,010)
CASH FLOWS FROM FINANCING ACTIVITIES:
Commercial paper-net change (20,000) (20,000)
Financial services notes payable 16,125 16,125
New long-term debt 50,000 50,000
Payments on long-term debt (8,812) (7,079) (1,733)
Prepayments on long-term debt (656) (656)
Stock issued under stock option,
purchase and bonus plans 2,541 2,541
Tax benefits related to
purchase and bonus plans 107 107
Treasury stock acquired (888) (888)
Dividends paid (5,515) (5,515) (1,362)
- - ----------------------------------------------------------------------------------
Net cash provided by financing activities 32,902 18,510 13,030
- - ----------------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents (202) (3,899) 3,697
Cash and cash equivalents
at beginning of year 11,662 10,987 675
- - ----------------------------------------------------------------------------------
Cash and cash equivalents
at end of year $ 11,460 $ 7,088 $ 4,372
==================================================================================
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1994, 1993 and 1992 are as follows (in
thousands except per share data):
Three Months Ended 1994
--------------------------------------------
Nov. 30 Feb. 28 May 31 Aug. 31
--------------------------------------------
Net sales $ 380,016 $ 389,913 $ 440,649 $ 447,232
Gross profit 36,606 32,830 40,916 42,892
Net earnings 5,723 4,272 7,145 9,030
Net earnings per share .38 .28 .48 .63
Three Months Ended 1993
--------------------------------------------
Nov. 30 Feb. 28 May 31 Aug. 31
--------------------------------------------
Net sales $ 324,380 $ 411,712 $ 435,041 $ 387,216
Gross profit 30,471 33,628 35,619 33,924
Net earnings 2,854 4,846 6,452 7,509
Net earnings per share .20 .33 .43 .50
Three Months Ended 1992
--------------------------------------------
Nov. 30 Feb. 29 May 31 Aug. 31
--------------------------------------------
Net sales $ 258,169 $ 263,136 $ 288,593 $ 346,305
Gross profit 26,459 22,709 28,086 35,521
Net earnings 2,819 438 2,759 6,494
Net earnings per share .20 .03 .19 .45
The quantities and costs used in calculating cost of goods sold on a quarterly
basis include estimates of the annual LIFO effect. The actual effect cannot be
known until the year-end physical inventory is completed and quantity and price
indices are developed. The quarterly cost of goods sold above includes such
estimates. Fourth quarter 1994 earnings decreased $3,084 after the final
determination of quantities and prices was made.
14. BUSINESS SEGMENTS
Summarized data for the Company's international operations (principally in
Europe and the Far East) are as follows (in thousands):
Year ended August 31,
- - ----------------------------------------------------------------------
1994 1993 1992
--------------------------------
Revenues-unaffiliated customers $ 478,012 $ 591,681 $ 282,888
======================================================================
Operating profit $ 8,683 $ 11,003 $ 3,137
======================================================================
Identifiable assets $ 139,668 $ 132,417 $ 123,590
======================================================================
Export sales from the Company's United States operations are as follows (in
thousands):
Year ended August 31,
- - ----------------------------------------------------------------------
1994 1993 1992
--------------------------------
Far East $ 36,686 $ 21,805 $ 36,896
Canada and Mexico 34,621 42,086 32,490
Other 6,660 4,208 8,050
- - ----------------------------------------------------------------------
Total $ 77,967 $ 68,099 $ 77,436
======================================================================
The Company operates in four business segments, as indicated below.
Intersegment sales generally are priced at prevailing market prices. Certain
corporate administrative expenses are allocated to segments based upon the
nature of the expense.
32
14. BUSINESS SEGMENTS (CONTINUED):
Adjustments
Marketing Financial and
1994 (in thousands) Manufacturing Recycling and Trading Services Corporate elimination Consolidated
- - -------------------------------------------------------------------------------------------------------------------------
Revenues - unaffiliated customers $ 592,958 $ 319,468 $ 751,027 $ 2,747 $ 34 $ -- $ 1,666,234
Intersegment revenues 5,317 22,782 6,895 (34,994)
- - -------------------------------------------------------------------------------------------------------------------------
Total revenues 598,275 342,250 757,922 2,747 34 (34,994) 1,666,234
========================================================================================================================
Operating profit (loss) 37,670 4,998 13,507 1,731* (9,681) 48,225
Interest expense (7,318)*
Earnings before income taxes 40,907
========================================================================================================================
Depreciation and amortization 22,382 7,003 655 103 30,143
========================================================================================================================
Capital expenditures 37,203 10,181 519 249 48,152
========================================================================================================================
Identifiable assets $ 281,471 $ 97,924 $ 154,102 $ 62,003 $ 9,377 $ -- $ 604,877
========================================================================================================================
1993 (in thousands)
- - -------------------------------------------------------------------------------------------------------------------------
Revenues - unaffiliated customers $ 482,076 $ 264,580 $ 816,901 $ 3,661 $ 1,288 $ -- $ 1,568,506
Intersegment revenues 5,334 25,592 1,018 (31,944)
- - -------------------------------------------------------------------------------------------------------------------------
Total revenues 487,410 290,172 817,919 3,661 1,288 (31,944) 1,568,506
========================================================================================================================
Operating profit (loss) 32,536 603 14,271 1,790* (6,541) 42,659
Interest expense (7,598)*
Earnings before income taxes 35,061
========================================================================================================================
Depreciation and amortization 19,193 7,392 688 88 27,361
========================================================================================================================
Capital expenditures 31,945 4,798 577 293 37,613
========================================================================================================================
Identifiable assets $ 234,005 $ 77,723 $ 140,760 $ 64,174 $25,299 $ -- $ 541,961
========================================================================================================================
1992 (in thousands)
- - -------------------------------------------------------------------------------------------------------------------------
Revenues - unaffiliated customers $ 446,321 $ 218,412 $ 495,509 $ 4,101 $ 1,449 $ -- $ 1,165,792
Intersegment revenues 5,289 17,428 1,002 (23,719)
- - -------------------------------------------------------------------------------------------------------------------------
Total revenues 451,610 235,840 496,511 4,101 1,449 (23,719) 1,165,792
========================================================================================================================
Operating profit (loss) 33,024 (8,120) 7,975 1,819* (6,374) 28,324
Interest expense (8,027)*
Earnings before income taxes 20,297
========================================================================================================================
Depreciation and amortization 17,521 7,336 676 95 25,628
========================================================================================================================
Capital expenditures 15,915 8,038 442 108 24,503
========================================================================================================================
Identifiable assets $ 228,855 $ 83,147 $ 102,936 $ 81,638 $19,162 $ -- $ 515,738
========================================================================================================================
*Interest expense of the financial services segment has been included in
operating profit in the amounts of $1,953 in 1994, $1,799 in 1993 and $1,924
in 1992.
33
15. SUBSEQUENT EVENT
On September 27, 1994 the Company announced an agreement and plan of merger
with Owen Steel Company, Inc. and related entities (Owen). Owen operates a
minimill and associated steel fabrication, joist and recycling plants in the
southeast United States.
The purchase price is approximately $50 million (payable one half each in
cash and common stock), subject to adjustments based upon the net worth of Owen
at closing. The Company will also provide funds for the retirement of $32
million of Owen debt at closing. The transaction is subject to, among other
things, customary closing conditions and certain regulatory approvals.
The acquisition will be accounted for under the purchase method of
accounting.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Commercial Metals Company
Dallas, Texas
We have audited the consolidated balance sheets of Commercial Metals Company
and subsidiaries at August 31, 1994 and 1993 and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
three years in the period ended August 31, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Commercial Metals Company and
subsidiaries at August 31,1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended August 31,
1994, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Dallas, Texas
October 19, 1994
34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No event reportable herein took place.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain of the information required in response to this Item with
regard to directors is incorporated herein by reference from the registrant's
Definitive Proxy Statement for the annual meeting of shareholders to be held
January 26, 1995, which will be filed no later than 120 days after the close of
the Registrant's fiscal year. The following is a listing of employees believed
to be considered "Executive Officers" of the registrant as defined under Rule
3b-7 as of August 31, 1994:
NAME CURRENT TITLE & POSITION AGE OFFICER SINCE
- - ---- ------------------------ --- -------------
Lawrence A. Engels Vice President, Treasurer and 61 1977
Chief Financial Officer
Hugh M. Ghormley Executive Vice President 65 1981
CMC Steel Group
Harry J. Heinkele President, Secondary Metals 62 1981
Processing Division
A. Leo Howell Vice President; President and 73 1977
Treasurer - Howell Metal Company;
Director and Chairman of the
Executive Committee
Jack T. Mulos Controller 70 1981
Stanley A. Rabin President and Chief Executive 56 1974
Officer; Director
Bert Romberg Senior Vice President 64 1968
35
Marvin Selig President, CMC Steel Group; 71 1968
Director
Clyde Selig Executive Vice President, 62 1981
CMC Steel Group
David M. Sudbury Vice President, Secretary and 49 1976
General Counsel
The Executive Officers are employed by the Board of Directors of the
registrant or the respective subsidiary usually at its first meeting after the
registrant's Annual Shareholders Meeting and continue to serve for terms set
from time to time by the registrant's Board of Directors in its discretion.
All of the Executive Officers of the Company have served in the
positions indicated above or in positions of similar responsibility for more
than five years. Director and Executive Officer Marvin Selig is the brother of
Executive Officer Clyde Selig. There are no other family relationships among
the officers of the registrant or among the Executive Officers and Directors.
ITEM 11. EXECUTIVE COMPENSATION
Information required in response to this Item is incorporated herein
by reference from the Registrant's Definitive Proxy Statement for the annual
meeting of shareholders to be held January 26, 1995, which will be filed no
later than 120 days after the close of the Registrant's fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in response to this Item is incorporated
herein by reference from the Registrant's Definitive Proxy Statement for the
annual meeting of shareholders to be held January 26, 1995, which will be filed
no later than 120 days after the close of the Registrant's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To the extent applicable, information required in response to this
Item is incorporated herein by reference from the Registrant's Definitive Proxy
Statement for the annual meeting of shareholders to be held January 26, 1995,
which will be filed no later than 120 days after the close of the Registrant's
fiscal year.
36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
2. Commercial Metals Company and Subsidiaries Consolidated Financial Statement
Schedules
Independent Auditors' Report as to Schedules
Property, Plant and Equipment (Schedule V)
Reserve For Depreciation (Schedule VI)
Valuation and qualifying accounts (Schedule VIII)
Short term borrowings (Schedule IX)
Maintenance and repairs (Schedule X)
All other schedules have been omitted because they are not applicable, are
not required, or the required information is shown in the financial statements
or notes thereto.
3. The following is a list of the Exhibits and Index required to be filed by
Item 601 of Regulation S-K:
(3)(i) Restated Certificate of Incorporation (Filed as Exhibit (3)(i)
to the Company's Form 10-K for the fiscal year ended
August 31, 1993 and incorporated herein by reference).
(3)(ii) By-Laws (Filed as Exhibit (3)(ii) to the Company's
Form 10-K for the fiscal year ended August 31, 1993
and incorporated hereby by reference).
(11) Calculation of primary and fully diluted earnings per share
(21) Subsidiaries of Registrant
(23) Independent Auditors' consent to incorporation by reference into
previously filed Registration Statements No. 2-56026 and No. 33-32066 on
Form S-8 of report dated October 19, 1994 accompanying the
consolidated financial statements of Commercial Metals Company and
Subsidiaries for the year ended August 31, 1994
(27) Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter covered by
this report.
37
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Commercial Metals Company
Dallas, Texas
We have audited the consolidated financial statements of Commercial Metals
Company as of August 31, 1994 and 1993, and for each of the three years in the
period ended August 31, 1994, and have issued our report thereon dated October
19, 1994; such financial statements and report are included in your 1994 Annual
Report to Stockholders and are incorporated herein by reference. Our audits
also included the consolidated financial statement schedules of Commercial
Metals Company listed in Item 14. These consolidated financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
October 19, 1994
38
SCHEDULE V
COMMERCIAL METALS COMPANY & SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
( in thousands )
YEARS ENDED AUGUST 31, 1994, 1993, AND 1992
LEASEHOLD CONSTRUCTION
TOTAL LAND BUILDINGS EQUIPMENT IMPROVEMENTS IN PROCESS
-------- ------- --------- --------- ------------ ------------
Balance September 1, 1991 289,690 9,378 27,824 235,670 11,606 5,212
ADDITIONS 24,503 141 742 18,068 907 4,645
RETIREMENTS OR SALES (16,879) (11) (51) (16,322) (346) (149)
TRANSFERS 60 561 4,805 350 (5,776)
-------- ------- --------- --------- ------------ ------------
Balance August 31, 1992 297,314 9,568 29,076 242,221 12,517 3,932
ADDITIONS 37,613 595 1,517 18,676 944 15,882
RETIREMENTS OR SALES (7,761) (48) (7,392) (251) (70)
TRANSFERS (0) 2 150 4,032 42 (4,227)
-------- ------- --------- --------- ------------ ------------
Balance August 31, 1993 327,166 10,165 30,695 257,537 13,252 15,517
ADDITIONS 48,152 512 1,482 36,916 2,017 7,225
RETIREMENTS OR SALES (4,762) (9) (4,429) (189) (135)
TRANSFERS 70 199 14,953 505 (15,727)
-------- ------- --------- --------- ------------ ------------
Balance August 31, 1994 $370,556 $10,747 $32,367 $304,977 $15,585 $6,880
======== ======= ========= ========= ============ ============
Useful lives of substantially all property, plant,
and equipment are as follows:
Buildings 15 to 31 years
Equipment 5 to 7 years
39
SCHEDULE VI
COMMERCIAL METALS COMPANY & SUBSIDIARIES
RESERVE FOR DEPRECIATION
PROPERTY, PLANT AND EQUIPMENT
( in thousands )
YEARS ENDED AUGUST 31, 1994, 1993, AND 1992
LEASEHOLD CONSTRUCTION
TOTAL LAND BUILDINGS EQUIPMENT IMPROVEMENTS IN PROCESS
-------- ------- --------- --------- ------------ ------------
BALANCE SEPTEMBER 1, 1991 $156,968 $10,469 $140,414 $6,085
ADDITIONS 25,628 1,183 23,345 1,100
RETIREMENTS OR SALES (15,972) (20) (15,736) (216)
TRANSFERS
-------- ------- --------- --------- ------------ ------------
BALANCE AUGUST 31, 1992 166,624 11,632 148,023 6,969
ADDITIONS 27,361 1,144 25,108 1,109
RETIREMENTS OR SALES (6,142) (45) (5,958) (139)
TRANSFERS 2 (2)
-------- ------- --------- --------- ------------ ------------
BALANCE AUGUST 31, 1993 187,843 12,731 167,175 7,937
ADDITIONS 30,143 1,102 27,817 1,224
RETIREMENTS OR SALES (4,238) (9) (4,091) (138)
TRANSFERS
-------- ------- --------- --------- ------------ ------------
BALANCE AUGUST 31, 1994 $213,748 $13,824 $190,901 $9,023
======== ======= ========= ========= ============ ============
40
SCHEDULE VIII
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED AUGUST 31, 1994, 1993 AND 1992
( In thousands )
Allowance for collection
losses deducted from notes
and accounts receivable:
Charged to Charged Deductions
Balance, profit and to other from Balance
beginning loss or accounts reserves end
Year of year income ( A ) ( B ) of year
-------- ---------- ---------- ---------- ---------- ----------
1992 $2,100 $1,988 $69 $1,657 $2,500
1993 2,500 1,998 192 1,473 3,217
1994 $3,217 $1,258 $275 $1,222 $3,528
( A ) Recoveries of accounts written off.
( B ) Write-off of uncollectible accounts.
41
SCHEDULE IX
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
SHORT-TERM BORROWINGS
( In thousands )
YEARS ENDED AUGUST 31, 1994, 1993 AND 1992
Maximum amount Average amount Weighted
Weighted outstanding outstanding average interest
Balance at average during the during the rate during
end of period interest rate period period the period
------------- ------------- -------------- ------------- ----------------
1992 $51,898 4.81% $65,631 $42,355 5.43%
1993 $41,003 3.00% $73,844 $51,125 3.88%
1994 $91,912 4.44% $105,976 $80,218 3.82%
42
SCHEDULE X
COMMERCIAL METALS COMPANY AND SUBSIDIARIES
MAINTENANCE AND REPAIRS
( In thousands )
YEARS ENDED AUGUST 31, 1994, 1993 AND 1992
Charged
to costs
Year and expenses
---- ------------
1994 $27,505
1993 23,204
1992 21,266
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COMMERCIAL METALS COMPANY
/s/ Stanley A. Rabin
--------------------------------------
By: Stanley A. Rabin
President and
Chief Executive Officer
Date: November 21, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ Albert A. Eisenstat /s/ Charles B. Peterson
- - -------------------------------------- --------------------------------------
Albert A. Eisenstat, November 21,1994 Charles B. Peterson, November 21, 1994
Director Director
/s/ Moses Feldman /s/ Stanley A. Rabin
- - -------------------------------------- --------------------------------------
Moses Feldman, November 21, 1994 Stanley A. Rabin, November 21, 1994
Director President, Chief Executive Officer
and Director
- - -------------------------------------- /s/ Marvin Selig
Laurence E. Hirsch, November ___, 1994 --------------------------------------
Director Marvin Selig, November 21, 1994
President - Steel Group
/s/ A. Leo Howell and Director
- - --------------------------------------
A. Leo Howell, November 21, 1994 /s/ Lawrence A. Engels
Vice President and Director --------------------------------------
Lawrence A. Engels, November 21, 1994
/s/ Walter F. Kammann Vice President and
- - -------------------------------------- Chief Financial Officer
Walter F. Kammann, November 21, 1994
Director /s/ Jack T. Mulos
--------------------------------------
/s/ Ralph E. Loewenberg Jack T. Mulos, November 21, 1994
- - -------------------------------------- Controller
Ralph E. Loewenberg, November 21, 1994
Director
44
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- - ------- ----------- ------------
(3)(i) Restated Certificate of Incorporation (Filed as Exhibit (3)(i)
to the Company's Form 10-K for the fiscal year ended
August 31, 1993 and incorporated herein by reference).
(3)(ii) By-Laws (Filed as Exhibit (3)(ii) to the Company's
Form 10-K for the fiscal year ended August 31, 1993
and incorporated hereby by reference).
(11) Calculation of primary and fully diluted earnings per share
(21) Subsidiaries of Registrant
(23) Independent Auditors' consent to incorporation by reference into
previously filed Registration Statements No. 2-56026 and No. 33-32066 on
Form S-8 of report dated October 19, 1994 accompanying the
consolidated financial statements of Commercial Metals Company and
Subsidiaries for the year ended August 31, 1994
(27) Financial Data Schedule